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Full text of "Report of the Auditor General to the House of Commons (for the fiscal year ended 31 March 1960)"



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CANADA 



REPORT OF THE AUDITOR GENERAL 



TO THE HOUSE OF COMMONS 



for the 



FISCAL YEAR ENDED MARCH 31 



1960 



LIBRARY 

: 1 * 1961 




"I 




CANADA 



REPORT OF THE AUDITOR GENERAL 
TO THE HOUSE OF COMMONS 

for the 
FISCAL YEAR ENDED MARCH 31 

1960 



ROGER DUHAMEL, F.R.S.C. 

QUEEN'S PRINTER AND CONTROLLER OF STATIONERY 

OTTAWA, 1960 

Price 50 cents Cat. No. FA1-1960 



86281-3—1 



AUDITOR GENERAL'S REPORT 



TABLE OF CONTENTS 

Page 

Introduction 5 

The Audit Approach 6 

The Public Accounts 7 

Cost of Operations 8 

Form of the Estimates 9 

Summary of Expenditure and Revenue 9 

Expenditure 10 

Revenue 13 

Comments on Expenditure and Revenue Transactions 16 

Summary of Assets and Liabilities 39 

Assets 40 

Liabilities 44 

Net Debt 48 

Comments on Asset and Liability Items 49 

Crown Corporations 53 

Agency Corporations 55 

Proprietary Corporations 58 

Departmental Operating Activities 63 

Special Statutory Audits and Examinations 70 

Appendix 

Statement of Expenditure and Revenue 1 

Statement of Assets and Liabilities 2 

Summary of Appropriations, Expenditure and Unexpended Balances, by Departments. . 3 

Summary of Expenditure, by Standard Objects, with Comparative Figures for the 

Preceding Fiscal Year 4 

Summary of Revenue, by Departments , . . 5 

86281-3 — li 



AUDITOR GENERAL'S REPORT 



The functions and responsibilities of the Auditor General of Canada are outlined 
in Part VII of the Financial Administration Act. Section 70 of the Act requires 
that the Auditor General report annually to the House of Commons on the results of 
his examinations of the accounts of Canada. 

2. My examinations of the departmental accounts for the fiscal year ended March 
31, 1960 were made in conformity with Section 67 of the Financial Administration Act 
which reads as follows: 

"The Auditor General shall examine in such manner as he may deem necessary the 
accounts relating to the Consolidated Revenue Fund and to public property and shall ascertain 
whether in his opinion 

(a) the accounts have been faithfully and properly kept, 

(6) all public money has been fully accounted for, and the rules and procedures applied 
are sufficient to secure an effective check on the assessment, collection and proper 
allocation of the revenue, 

(c) money has been expended for the purposes for which it was appropriated by 
Parliament, and the expenditures have been made as authorized, and 

[d) essential records arc maintained and the rules and procedures applied are sufficient 
to safeguard and control public property." 

3. In addition, Section 70 of the Financial Administration Act contains the following 
direction : 

"The Auditor General shall report annually to the House of Commons the results of his 
examinations and shall call attention to every case in which lie has observed that 

(a) any officer or employee has wilfully or negligently omitted to collect or receive any 

money belonging to Canada, 

(b) any public money was not duly accounted for and paid into the Consolidated 
Revenue Fund, 

(c) any appropriation was exceeded or was applied to a purpose or in a manner not 
authorized by Parliament, 

(d) an expenditure was not authorized or was not properly vouched or certified, 

(e) there has been a deficiency or loss through the fraud, default or mistake of any 
person, or 

(/) a special warrant authorized the payment of any money, 

and to any other case that the Auditor General considers should be brought to the notice of 
the House of Commons." 

Comments upon the cases brought to the notice of the House under this direction are to 
be found in paragraphs 41 to 84 of this report. 



6 AUDITOR GENERAL'S REPORT 

4. The Statement of Expenditure and Revenue for the year ended March 31, 1960, 
and the Statement of Assets and Liabilities as at that date, prepared by the Department 
of Finance for inclusion in the Public Accounts, have been examined and certified by 
me as required by Section 69 of the Financial Administration Act, subject to my 
comments in this report to the House of Commons. Copies of these financial statements 
are attached hereto as Appendices 1 and 2, respectively. Copies of the Summary of 
Appropriations, Expenditure and Unexpended Balances, by Departments, and of the 
Summary of Revenue, by Departments, as included in the Public Accounts, are given as 
Appendices 3 and 5, respectively. 

5. The report contains explanatory notes in paragraphs 22 to 29 regarding some of 
the major changes between the 1959-60 and 1958-59 expenditures, by appropriation 
headings. There is also submitted a Summary of Expenditure by Standard Objects 
(Appendix 4) comparing the 1959-60 expenditures with those of 1958-59, by the headings 
used in the Details of the Estimates. 

The Audit Approach 

6. My examinations were conducted on a test basis during the year in accordance 
with past practice, the extent of the tests varying according to the nature of the transac- 
tions and the effectiveness of the internal control. The tests were supplemented by a 
general review of the accounting procedures in the departments and other agencies under 
examination — which comprised all departments, Crown corporations and other instru- 
mentalities of the Government of Canada, excepting those listed in paragraph 113, whose 
accounts were examined by other auditors. 

During the course of our examinations, members of the staff of the Audit Office 
were given full access to all vouchers, records and files of the various departments, 
Crown corporations and other agencies. In addition, they were provided with all supple- 
mentary information and explanations required during the course of their work. I should 
like to express my appreciation for the cooperation so readily extended by departmental 
and Treasury officers and by the administrative and accounting officers of Crown corpora- 
tions and other agencies. Their cooperation greatly facilitated the audit work. 

7. The Audit Office is developing what may be termed the comprehensive audit 
approach. This involves little change in the basic auditing program followed heretofore. 
Broadly speaking, it continues to require that in undertaking an examination of the 
financial affairs of a department, Crown corporation or other agency, the auditor must 
make a complete study of the governing legislation and obtain an understanding of 
the agency's basic function. In addition, he must study the organization with which its 
management is carrying out that function and understand the policies under which it 
operates. 

k& a result of his detailed knowledge of the operations of the agency obtained during 
the course of his audit, the auditor is in a position to work constructively with its 



AUDITOR GENERAL'S REPORT 7 

management in evaluating the effectiveness of its internal control procedures, and in 
improving the cost controls. This aspect of the work is being extended as circumstances 
permit. 

8. In approaching its work in this manner, the Audit Office is fulfilling an important 
function by helping its clients to improve and develop their efficiency through the 
medium of effective periodic accounting statements and financial reports, the basic tools 
necessary to control costs. 

Government departments and other agencies by their very nature do not possess 
the profit incentive to control costs such as exists in private enterprise. They must 
accordingly develop their own efficiency yardsticks in administering public funds, not 
only to ensure that expenditure is adequately controlled but that "built-in costs", which 
can so often escape the notice of the best intentioned managements, come under constant 
scrutiny and revision. 

9. Detailed reports addressed to the managements of departments, Crown corpora- 
tions and other agencies are currently being issued by the Audit Office covering the 
results of its examinations. These reports, patterned after those in widespread use among 
professional accountants in private practice, outline the scope of the audit, give a broad 
summary of the operations for the year under review, analyse the financial results in 
comparison with those of previous years and make available to the management 
comments and suggestions regarding weaknesses in internal control, savings that might 
be achieved and other matters noted during the course of the audit. 

The Public Accounts 

10. Pursuant to Section 63 of the Financial Administration Act, the Minister of 
Finance is responsible for the manner in which the accounts of Canada are maintained, 
and Section 64 requires that an annual report, called the Public Accounts, be laid by him 
before the House of Commons. 

The Public Accounts constitute, in effect, Canada's Annual Financial Report to its 
shareholders, the general public. As such, it should conform to the highest standards of 
financial reporting in the country and be presented in a clear and concise manner without 
being encumbered with unnecessary detail. Only in this way can Parliament and the 
public be expected to give the accounting the attention it deserves. 

Progress has been made during the past several years and again this year towards 
achieving this objective which is a matter of continuing study by the Department of 
Finance. However, much still remains to be done. For example, the listings of suppliers 
and contractors receiving $10,000 and over through each department might be eliminated 
from the Public Accounts in favour of simply providing the information on specific 
request. On the other hand, additional information might be given in some areas, for 
example, comprehensive audited financial statements could be included for certain 
departmental operating activities as suggested in paragraph 148 of this report. 



8 AUDITOR GENERALS REPORT 

Cost of Operations 

11. The accounting that the Public Service makes with respect to Canada's financial 
affairs today is based on a long tradition of scrupnlons care and honesty of purpose. It 
is second to none among the public services of the world in the way it seeks to safeguard 
and account for the funds entrusted to it by Parliament. Its performance is not to be 
condemned simply because instances of waste or lack of judgment in specific transactions 
require disclosure under our parliamentary system. Such instances can be found in 
varying degree in the best managed commercial operations. 

Accounting in government as it has developed over the years is a natural outcome 
of the parliamentary system. It has been designed basically to ensure that expenditures 
are made in accordance with parliamentary authority. This js the essential function. 
Of considerable importance, however, is the necessity for the accounting to provide 
complete and accurate costs of the individual activities or operations and the development 
of reliable yardsticks against which their efficiency can be measured. Only in this way 
can value for money spent be reasonably assured. 

12. It is a recognized fact that the cost of operations of a private business, including 
the cost of its administration as well as the manufacture of its product, must be kept under 
constant examination if management is to control the operations effectively and eco- 
nomically. Only by having accurate figures with which to measure costs can the operations 
be examined in depth on an informed and constructive basis. There would seem to be 
an even greater need in the case of government activities for such detailed examination 
because the funds employed are public funds entrusted to the Government by the 
citizens of the country. 

13. However, under existing governmental practice, the appropriations for each 
department provide only for the cash estimated to be required during the fiscal year 
to discharge the direct costs of the department. They do not ordinarily provide for 
charges for office or other premises occupied because these costs, including rentals paid, 
are usually recorded as budgetary expenditures of a single department, namely, the 
Department of Public Works. The office furniture and fixtures required by the various 
departments are similarly recorded. Likewise, departmental mail is generally carried 
without charge to departments, with the cost absorbed by the Post Office; and telephone 
charges in Ottawa, except long distance charges, are borne by an appropriation for the 
Department of Finance. In general, where occasional services are performed by one depart- 
ment for another, no inter-departmental billings are issued. Generally, also, where 
departmental labour is used in construction work, the cost is not charged to the appro- 
priation for the capital cost of the work. In all these circumstances, although the 
expenditure total may be correct for the departmental services as a whole, expenditures 
are thus erroneously stated for individual departments and appropriations. 



AUDITOR GENERAL'S REPORT 9 

I believe that early consideration should be given to remedying these accounting 
anomalies and inconsistencies in order that the accounts relating to parliamentary 
appropriations may more accurately record the expenditures incurred for the various 
services. 

14. It is universally recognized in all large business and financial operations that 
accurate internal periodic accounting statements, tailored to meet the particular require- 
ments of the activity, are essential for effective management control of the costs of 
operations. 

If the practices to which I have referred were changed, periodic accounting state- 
ments prepared for management purposes by departmental administrative officers would 
obviously give a more accurate picture of the operations. As a consequence, they would 
become more effective instruments in the hands of departmental managements in the 
control of their expenditures. 

Form of the Estimates 

15. The form of the annual Estimates, a responsibility of the Treasury Board, is 
important from the accounting point of view because it determines in large measure the 
manner in which the subsequent accounting for expenditures is maintained and reported 
in the Public Accounts. This in turn is important to the Auditor General because of his 
responsibilities to Parliament. 

16. Informed consideration of the Estimates by the House of Commons before the 
money is voted is all-important. For this reason, consideration should be given to the 
form of the Estimates presentation with a view to providing more meaningful information, 
for example, by: 

(a) comparing the amounts estimated for the ensuing year directly with the anticipated 
actual expenditure for the current year, as well as with the amounts that had been 
estimated for the current year; 

(6) giving the estimated amounts in three columns: estimated expenditure (gross) ; estimated 
revenue; and net requirements to be voted (thus giving Parliament an opportunity to 
consider the sufficiency of receipts for services rendered, in relation to the costs incurred) ; 

(c) including both operating and capital budgets of Crown corporations, even where funds 
will be forthcoming in full from corporate resources (thus giving Parliament an oppor- 
tunity to consider broad policies associated with their operations) ; and 

(d) including appropriate explanations in all cases where expenditures proposed for the year 
involve commitments for future years. 

Summary of Expenditure and Revenue 

17. The Statement of Expenditure and Revenue for the year ended March 31, 1960, 
prepared by the Department of Finance for inclusion in the Public Accounts, is given as 
Appendix 1 to this report. It shows expenditure totalling $5,703 million and revenue 



10 AUDITOR GENERAL'S REPORT 

amounting to $5,290 million. The deficit for the year was, therefore, $413 million compared 
with $609 million in the preceding fiscal year and $38 million in 1957-58. 

18. The actual results for the year ended March 31, 1960 compare with the estimated 
expenditure, revenue and deficit, respectively, as forecast by the Minister of Finance in 
his Budget Speech on April 9, 1959, as follows: 

Estimated Actual 

Expenditure $ 5,660 million S 5,703 million 

Revenue 5,267 million 5,290 million 

Deficit $ 393 million $ 413 million 



Expenditure 

19. The Summary of Appropriations, Expenditure and Unexpended Balances, by 
Departments for the year ended March 31, 1960, prepared for inclusion in the Public 
Accounts and given as Appendix 3 to this report, shows appropriations amounting to 
$6,046 million, expenditures totalling $5,703 million and unexpended balances of $343 
million. 

20. Of the $6,046 million of appropriations, $2,296 million represented statutory 
appropriations, $3,720 million was for appropriations granted under Appropriation Acts 
(Nos. 2. 4 and 5 of 1959, and Nos. 1 and 3 of 1960), and $30 million was provided by con- 
tinuing 1958-59 appropriations (Votes 709, 734 and 741). 

The expenditure of $5,703 million comprised, in addition to the $2,296 million spent 
under statutory appropriations, amounts totalling $3,407 million charged to the annual 
appropriations. 

The unexpended balances of $343 million lapsed at the end of the year in compliance 
with Section 35 of the Financial Administration Act with the exception of the unspent 
balances of $14,625,000 and $490,000, respectively, in Votes 615 and 648. These balances 
remained available for expenditure in 1960-61 because of the special wording in the 
appropriations, both of which were for continuing projects: 

Vote 615: Payments to provinces and in respect of Indian Bands under the Municipal Winter 
Works Incentive Program during the 1959-60 and 1960-61 fiscal years of amounts not 
exceeding one-half of the cost of labour incurred in the period from the 1st day of 
December, 1959, to the 30th day of April, I960, in accordance with terms and conditions 
approved by the Governor in Council $15,000,000 

Vote 648: Expenses in connection with Canada's participation in the World Refugee Year 
and, notwithstanding section 35 of the Financial Administration Act, to authorize pay- 
ments to be made pursuant to this vote up to the 1st day of April, 1961; there shall be 
charged to this vote and included in the unexpended balance of Vote 55 of the Main 
Estimates, 1959-60, an amount equal to the amount spent and charged to that vote in 
connection with the World Refugee Year $ 600,000 



AUDITOR GENERAL'S REPORT 11 

21. The following table summarizes the expenditure, by departments, for the fiscal 

year 1959-60, in comparison with the corresponding amounts for the two previous years: 

Department 1957-58 1958-59 1959-60 

Agriculture $ 94,661,000 $ 165,842,000 $ 181,390,000 

Canadian Broadcasting Corporation 42,974,000 62,018,000 63,946,000 

Citizenship and Immigration 51,805,000 52,844,000 54,917,000 

External Affairs 60,209,000 75,486,000 96,895,000 

Finance 1,187,362,000 1,228,205,000 1,420,155,000 

Labour 81,695,000 86,756,000 102,885,000 

Mines and Technical Surveys 36,135,000 43,789,000 54,432,000 

National Defence 1,668,439,000 1,424,741,000 1,514,904,000 

National Health and Welfare 662,730,000 872,917,000 818,371,000 

National Revenue 67,709,000 68,788,000 68,696,000 

Northern Affairs and National Resources . . 49,095,000 65,177,000 81,112,000 

Post Office 153,320,000 157,803,000 165,792,000 

Public Works 209,258,000 226,061,000 217,876,000 

Royal Canadian Mounted Police 47,356,000 51,735,000 52,444,000 

Trade and Commerce 56,939,000 65,636,000 67,443,000 

Transport 206,734,000 288,838,000 296,447,000 

Veterans Affairs 277,242,000 288,784,000 288,305,000 

Other departments 133,748,000 138,620,000 156,851,000 

$ 5,087,411,000 S 5,364,040,000 $ 5,702,861,000 



The amounts shown for the Department of National Health and Welfare do not 
include outlays under the Old Age Security Act, which were charged to the Old Age 
Security Fund (see paragraph 28). 

In those cases where departmental expenditure totals for 1959-60 varied from those 
for 1958-59 by more than 5%, comments are made in the following paragraphs regarding 
the variations in individual appropriations or groups of appropriations which mainly 
accounted for the changes in the departmental totals. 

22. Agriculture. The increase of $16 million (9%) in expenditure by this department 
in 1959-60 compared with 1958-59 was due to payments of $5 million in contributions 
to Western provinces for unhar vested crops, and to increases of $4 million (30%) in 
expenditures for rehabilitation and reclamation projects, and $4 million (19%) in 
payments of freight assistance on Western feed grains. There was no outlay for acreage 
payments to Western grain producers in 1959-60 corresponding to the $41 million of 
such payments in 1958-59, but this saving was more than offset by an increase of $43 
million in the amount appropriated towards the net operating loss in the Agricultural 
Commodities Stabilization Account. 



23. External Affairs. The $21 million (28%) increase in expenditure by this depart- 
ment resulted from increases of $15 million (43%) in grants to the Colombo Plan Fund 
and $6 million (54%) in contributions to international organizations. The latter increase 
was due mainly to the donation of dry skimmed milk and canned pork with a value of 
approximately $4 million to international relief agencies during 1959-60. 

24. Finance. Expenditures by this department rose by nearly $192 million (16%) 
in the year under review. Public debt charges increased by $135 million (21%) and 



12 AUDITOR GENERAL'S REPORT 

subsidies and tax-sharing payments to the provinces were up $52 million (11%) over 
the preceding year. 

25. Labour. The increase of $16 million (19%) in expenditure by this department 
was mainly accounted for by increase's of $9 million (23/v ) in the government's contribu- 
tion to the Unemployment Insurance Fund and of $7 million in payments to the 
provinces in respect of winter works projects. The winter works program became 
operative only towards the close of the preceding fiscal year and the 1959-60 accounts 
were therefore the first to reflect charges for a full fiscal year. 

26. Mines (uid Technical Surveys. The increase of $11 million (23%) in expenditure 
by this department was mainly due to increases of $6 million (QS ( /c ) in payments by the 
Dominion Coal Board in respect of the movement of coal and S3 million (34'; ) in 
payments under the Emergency Gold Mining Assistance Act. 

27. National Defence. The expenditure figure for this department in 1959-60, when 
compared with the corresponding amount for the preceding year, indicates an increase 
of $90 million or 6$ . However, when $212 million of outlays charged to the National 
Defence Equipment Account in 195S-59 are taken into consideration, there was, in fact, 
an overall decrease in expenditure of S122 million or 7%. This decrease is partly 
accounted for by reductions of $35 million (47%) in expenditure for Defence Research 
and Development and $32 million (4%) in that for the Air Service. There was also a 
decrease of $30 million (43$ ) in Mutual Aid expenditure, taking into consideration a 
change in the method of accounting, whereby the costs of equipment transferred from 
Service holdings and of aircrew training were borne by the Service appropriations instead 
of being charged against the Mutual Aid appropriation, as previously. 

28. National Health and Welfare. The decrease of $55 million (6$ ) in expenditure 
by this department mainly resulted from there being no charge in 1959-60 corresponding 
to that of $184 million for the repayment of temporary loans to cover the deficiency 
in the Old Age Security Fund in 1958-59, with this saving being partially offset by 
increases of $96 million (175$ ) in the government's contributions under the Hospital 
Insurance and Diagnostic Services Act, $16 million (S r /c) in family allowances and $16 
million (68^ ) in unemployment assistance. 

The absence of any expenditure charge in 1959-60 to cover the deficiency in the Old 
Age Security Fund was the result of the decision to carry forward to 1960-61 the 1959-60 
temporary loan of $28 million (representing the deficiency for that year) rather than to 
charge the amount as a budgetary expenditure, as in 1958-59. The following is a summary 
of the transactions in the Old Age Security Fund during the year ended March 31, 1960, 
in comparison with the two previous fiscal years: 

l!i.-)7-58 1958-59 1959-60 



Outlays charged J 473359,000 S 559.280.000 $574,887,000 

Collect ions credited 371,457,000 375,301.000 .")!GSS6,000 



Deficii ocy S 102,402,000 S 1S3,979,000 S 28,001,000 



AUDITOR GENERAL'S REPORT 



13 



The considerable increase in payments of contributions towards programs of hospital 
insurance and diagnostic services administered by the provinces was due to 1959-60 being 
the first fiscal year in which any province participated for a full year. 

29. Northern Affairs and National Resources. The $16 million (24%) increase in 
expenditure by this department in 1959-60 compared with the preceding year was largely 
accounted for by an increase of $12 million (45%) in expenditure by the Northern 
Administration and Lands Branch and of $3 million (14%) in expenditure by the 
National Parks Branch. Of the $12 million increase in expenditure by the Northern 
Administration and Lands Branch, the most significant increase was that of $7 million 
in contributions to the provinces to assist in the development of the "roads to resources" 
program. 



30. A Summary of Expenditure, by Standard Objects (i.e., according to the expendi- 
ture classification used in the Details of the Estimates) for the year ended March 31, 
1960, compared with the corresponding amounts for the preceding fiscal year, is given as 
Appendix 4 to this report. Details of the expenditures, by standard objects and by 
departments, for the year ended March 31, 1960, are given in a statement in the Public 
Accounts, Part II, pages 4 to 9. 



Revenue 

31. The revenue for the fiscal year 1959-60 totalled $5,290 million (Appendix 1), an 
increase of $535 million over the preceding year. The following table summarizes the 
revenue, by principal sources, in comparison with the corresponding amounts for the 
two previous years: 

1957-58 1958-59 1959-60 

Tax Revenues: 

Personal income tax $ 1,499,788,000 S 1.353,500,000 S 1,566,644,000 

Corporation income tax 1,234,807.000 1.020.550,000 1,1 12,S80,000 

Income tax on dividends, interest, etc., 

going abroad 04,334,000 61.213,000 73,353,000 

Sales tax 703,170,000 694,491,000 732,658.000 

Other excise taxes 249,421 ,000 240,624,000 286,568,000 

Customs duties 498.069,000 486,509,000 525,722,000 

Excise duties 300,133,000 316,744.000 335,207,000 

Estate tax 71,608,000 72,535,000 88,431,000 

Other tax revenues 1,49S,000 1,213,000 S77,000 

Non-tax Revenues: 

Return on investments 169,424,000 221,204,000 239,654,000 

Net postal revenue 152,860,000 157.541,000 167.562,000 

Other non-tax revenues 103,676,000 128,599,000 130,195,000 

$ 5,048,78S,000 $ 4,754,723,000 $ 5,289,751,000 



32. The amounts shown for income taxes and sales tax do not include collections of 
tax levied under the Old Age Security Act on personal and corporation incomes and on 



14 



AUDITOR GENERAL'S REPORT 



sales. This tax was increased from 2% to 3% effective January 1, 1959 on corporation 
income, July 1, 1959 on personal income and April 10, 1959 on sales. The collections 
were credited to the Old Age Security Fund as follows: 



Old Age Security Tax 1957-58 

On sales $ 175,792,000 

On personal incomes 135,001 000 

On corporation incomes 60,664,000 

S 371,457,000 



1958-59 

S 173,623,000 

146,350,000 

55.328,000 



1959-60 

S 270,000,000 

185,550,000 

91,336,000 



S 375,301,000 S 546,886,000 



The outlays charged to the Fund during the three-year period, together with the 
collections credited and the resultant deficiencies, are referred to in paragraph 28. 

33. The following is a summary of the excise taxes, other than sales tax, collected 
during the year ended March 31, 1960, in comparison with the corresponding amounts 
for the two previous years: 



Excise Tax 1957-58 

Cigarettes $ 121,493,000 

Automobiles 72,331,000 

Manufactured tobacco 18,368,000 

Television sets and tubes 10,005,000 

Phonographs, radios and tubes 6,855,000 

Toilet articles and preparations 6,269,000 

Jewellery, clocks, watches, chinaware, etc 5,353,000 

Wines 2,744,000 

Cigars 2,556,000 

Sundry excise taxes 4,172,000 

Refunds and drawbacks —725,000 

$ 249,421,000 



1958-59 



1 '.i.V.i GO 



$ 127,148,000 


$ 163,608,000 


59,308,000 


64,281,000 


18,175,000 


19,292,000 


10,241,000 


9,387,000 


7,557,000 


8,372,000 


6,824,000 


7,651,000 


5,599,000 


5,609,000 


3,140,000 


3,027,000 


2,673,000 


2,603,000 


2,530,000 


3,099,000 


-2,571,000 


-361,000 


$ 240,624,000 


$ 286,568,000 



The increase of $36 million (29%) in revenue from the tax on cigarettes in 1959-60 
compared with the preceding year was mainly due to the increase in the tax rate of 
two cents per package of 20 cigarettes which came into effect on April 10, 1959. 



34. A listing of the excise duties collected during the year ended March 31, 1960 
with comparable figures for the two previous years is given in the following table: 

Excise Duty 1957-58 1958-59 1959-60 

Cigarettes $ 123,301,000 $ 132.547,000 $ 136.931,000 

Spirits 83,653,000 96,551,000 102,354,000 

Beer 88,226,000 83,058,000 90.704,000 

Other excise duties 8,417,000 8,688,000 9,279,000 

Refunds and drawbacks —3,464,000 —4,100,000 —4.061,000 

$ 300,133,000 $ 316,744,000 $ 335,207,000 



The increase in revenue from duties on spirits in 1959-60 was due mainly to an increase 
in the duty rate of one dollar per proof gallon effective April 10, 1959. 



AUDITOR GENERAL'S REPORT 15 

35. The following is a summary of the return on investments for the fiscal year 
1959-60 with comparable figures for the two previous years: 

Investment 1957-58 1958-59 1959-60 

Bank of Canada $ 68,711,000 $ 88,632,000 $ 74,012,000 

Central Mortgage and Housing Corporation 18,221,000 28,961,000 43,804,000 

Loans to national governments 10,122,000 31,947,000 31,104,000 

Exchange Fund Account 22,880,000 18,626,000 25,513,000 

Canadian National Railways 12,454,000 11,451,000 11,073,000 

Deposits with chartered banks 5,253,000 4,941,000 10,493,000 

The St. Lawrence Seaway Authority 5,000,000 

Veterans' Land Act loans 4,941,000 5,007,000 4,952,000 

Eldorado Mining and Refining Limited 3,525,000 3,525,000 4,230,000 

Northern Ontario Pipe Line Crown Corporation . 569,000 3,078,000 4,074,000 

Polymer Corporation Limited 4,000,000 4,000,000 4,000,000 

Securities Investment Account 1,424,000 2,613,000 3,546,000 

National Harbours Board 3,402,000 3,187,000 3,321,000 

Farm Credit Corporation 1,637,000 1,956,000 2,815,000 

Other loans and investments 12,285,000 13,280,000 11,717,000 

$ 169,424,000 $ 221,204,000 $ 239,654,000 



36. The $239,654,000 return on investments for 1959-60 represented an increase of 
$18 million (8%) over the preceding fiscal year. The amounts shown as earned on the 
investment in the Bank of Canada represent the annual profits earned by the Bank and 
surrendered to the Receiver General under the Bank of Canada Act. The Central 
Mortgage and Housing Corporation amounts comprise mainly interest on loans, but 
also include the Corporation's annual profits ($4,348,000 in 1959-60). Interest earned 
on deposits with the chartered banks was more than double that earned in the preceding 
year, due mainly to the higher interest rates prevailing on Treasury Bills upon which 
the bank interest rate is based. The $5 million shown for The St. Lawrence Seaway 
Authority in 1959-60 represents the first interest payment received on loans made to 
the Authority under the St. Lawrence Seaway Authority Act. 

37. The net postal revenue amounts listed in the table in paragraph 31 represent 
gross postal revenues less disbursements for (a) remuneration of postmasters and staffs at 
sub-offices, semi-staff offices and revenue post offices, and (b) certain miscellaneous 
expenditures for the past three years, as follows : 

1957-58 1958-59 1959-60 

Gross postal revenue $177,433,000 $183,291,000 $193,593,000 

Disbursements — 

Remuneration of postmasters and staffs 21,317,000 21,781,000 22,053,000 

Miscellaneous expenditures 3,256,000 3,969,000 3,978,000 

24,573,000 25,750,000 26,031,000 

Net postal revenue $ 152,860,000 $ 157,541,000 $ 167,562,000 



16 AUDITOR GENERAL'S REPORT 

38. An analysis of the amounts shown for other non-tax revenues for the year ended 
March 31, 1900 with comparable figures for the two previous years is given in the following 
table: 

1957-58 1958-59 1959-60 

Privileges, licenses and permits $ 19,307,000 $ 27,883,000 $ 24,970,000 

Proceeds from .sales 22,321,000 23,521,000 21,892,000 

Services and service fees 22,556,000 27,195,000 31,299,000 

Refunds of previous years' expenditure 28,083,000 37,663,000 40,630,000 

Miscellaneous 11,409,000 12,337,000 11,404,000 

S 103,676,000 S 128,599,000 $ 130,195,000 



39. The Summary of Revenue, by Departments, for the year ended March 31, 1900, 
as included in the Public Accounts, is given as Appendix 5 to this report. 

Comments on Expenditure and Revenue Transactions 

40. Reference has already been made in this report to the statutory responsibilities 
of the Auditor General under the Financial Administration Act and in particular to Section 
70 under which he is required to call attention to specific transactions observed during his 
examinations. 

Pursuant to this direction, I consider that the following cases relating to the expend- 
iture and revenue transactions examined during the year under review should now be 
brought to the attention of the House of Commons. 

41. Prairie Farm Emergency Fund deficit. Reference has been made in previous 
reports to the practice of charging annual deficits in the operations of the Prairie Farm 
Emergency Fund to Expenditure, although no provision for this had been made in the 
governing Act and no parliamentary appropriations had been provided to cover the 
charges. 

The deficit of $12,529,000 which resulted from the Fund's operations in 1959-60 was 
again charged to Expenditure notwithstanding this lack of specific parliamentary 
authority. 

42. Recovery of subsidies for cold storage warehouses. The Cold Storage Act, c. 52, 
R.S., authorizes the Governor in Council to grant subsidies, out of any money appropriated 
by Parliament for the purpose, towards the construction and equipment of public cold 
storage warehouses, and to make regulations to ensure the efficient operation and enforce- 
ment of the Act. The Act does not make provision for recovery of all or any part of a 
subsidy in the event of the subsequent sale of subsidized facilities for other purposes. But 
the form of contract prescribed by the regulations to be entered into with persons seeking 
a subsidy provides that the subsidy is to be repaid if the facilities are sold without the 
approval of the Minister — and that if they are disposed of with such approval "the 
contractor will comply with such terms and conditions as may be imposed by the 
Minister". 



AUDITOR GENERAL'S REPORT 17 

During the year under review, an instance was observed where $8,007 of a payment 
of $14,807 made in 1946 was required to be repaid on the sale of the subsidized premises, 
the difference of $6,800 being regarded by the department as an appropriate allowance 
for depreciation. 

In this connection we have obtained an opinion from the Department of Justice that 
the regulations permit the Minister to approve of the sale of a subsidized cold storage 
warehouse without requiring, as a term or condition thereof, repayment of any part of 
the subsidy. In view of this, we are of the opinion that the regulations should be amended 
to ensure maximum recovery of subsidy in each case. 

43. Contracts for charter hire of helicopters. Aircraft charter hire rates charged by 
commercial aviation companies are governed by tariffs filed with the Air Transport Board. 
During the course of our examination we observed that, with respect to certain contracts 
awarded by the Department of Defence Production covering the charter hire of helicopters 
for the Department of National Defence, the filed tariffs and provisions of related contracts 
were susceptible to more than one interpretation. Several cases were noted where charges 
had been accepted which did not appear to be in accordance with the terms of the gov- 
erning contracts, and on our drawing these apparent overpayments to departmental atten- 
tion refunds of $1,400 and $800 were obtained in two instances. 

The Department of Defence Production has since taken steps to arrange for contracts 
of this nature to be drawn in more precise terms in order to avoid similar misunder- 
standings in the future. 

44. Delay in accounting for counterpart funds. Up to March 31, 1960, approximately 
$80 million of the funds appropriated by Parliament for the Colombo Plan had been spent 
for the purchase of wheat, flour, copper, aluminum, nickel, fertilizers and wood pulp 
supplied to India, Pakistan, Ceylon, Nepal, Indonesia and Burma. By agreement with the 
recipient countries, when goods that are not directly related to economic development 
are financed by grants from the Government of Canada under the Colombo Plan and sold 
or otherwise distributed by the governments concerned, "counterpart funds" are to be set 
aside for subsequent use in connection with agreed economic development projects in 
their countries. These funds are to be paid into special local currency accounts, and the 
government of a recipient country is to report from time to time to the Government of 
Canada the position of its counterpart fund account and supply a covering certificate from 
its Auditor General. 

Gifts of wheat and flour costing $35 million are covered by similar agreements. 

86281-3—2 



18 AUDITOR GENERAL'S REPORT 

As at July 31, 1960, certified statements of counterpart funds had been received 
by the Department of External Affairs in respect of $15 million worth of wheat shipped 
to India in 1952 and 1953, $10 million worth of wheat shipped to Pakistan in 1953, and 
$4 million worth of flour shipped to Ceylon from 1954 to the end of March 1958. How- 
ever, no such statements had yet been received for counterpart funds in respect of 
commodities on which the Canadian expenditures were as follows: 

1954-55 

to 
1957-58 1958-59 1959-60 

India $ 11,754,342 $ 18,283,310 S 31,146,307 

Pakistan 6,334,751 6,065,031 6,560,567 

Ceylon 2,999,893 1,399,965 

Nepal 60,000 

Indonesia 499,939 

Burma 499,933 

45. Expenditure charges to adjust insurance account balances. The following insur- 
ance plans were established many years ago: Civil Service Insurance Fund, actuarially 
calculated at 6% interest; Returned Soldiers' Insurance Fund at 4% interest; and 
Veterans' Insurance Fund at 3^% interest. Notwithstanding the fact that interest credits 
were discontinued on the first of these accounts as at March 31, 1954, and on the other 
two as at March 31, 1952, the operations of the accounts reflected actuarial surpluses at 
March 31, 1956, as follows: Civil Service Insurance Fund, $8,267,453; Returned Soldiers' 
Insurance Fund, $4,301,701; and Veterans' Insurance Fund, $2,643,070. These surpluses, 
which totalled $15,212,224, were credited to Net Debt Account in the fiscal year 1956-57, 
in order to adjust the balances in the accounts to the amounts of the respective actuarial 
liabilities at March 31, 1956. 

No interest has been credited to the accounts since these adjustments were made 
and actuarial deficits have arisen. These have been made good by means of annual 
non-cash charges to Expenditure, the 1959-60 charges with respect to the several funds 
being: Civil Service Insurance Fund, $589,000; Returned Soldiers' Insurance Fund, 
$520,000; and Veterans' Insurance Fund, $328,000. The charges were reported as special 
"statutory" items in the Public Accounts (pages N-2 and AI-3). 

We would point out that in no case does the governing legislation contain provision 
for the making of such charges. 

46. Proceeds of fines not accounted for. Subsection (2) of Section 626 of the Criminal 
Code provides that "where a fine. . . is imposed in respect of any proceedings instituted 
at the instance of the Government of Canada, in which that government bears the costs 
of prosecution, the proceeds of the fine. . . belong to Her Majesty in right of Canada 
and shall be paid by the person who receives them to the Receiver General of Canada". 



AUDITOR GENERAL'S REPORT 19 

Records of the Department of Fisheries indicate that a former magistrate failed to remit 
fines totalling approximately $2,400 imposed and collected by him during the years 1956 
to 1958 for offences under the Fisheries Act and regulations made thereunder. 

It was observed that fines imposed and collected by the same magistrate in the period 
from 1953 to 1955 were recovered after the filing of information in the Exchequer Court, 
but no such action has been taken with regard to those imposed and collected during 
the later period. 

47. Questionable charge for stockpiling of coal. For many years parliamentary 
appropriations have been provided annually to the Department of Mines and Technical 
Surveys (Dominion Coal Board) for "payments in connection with movements of coal 
under conditions prescribed by the Governor in Council". Assistance on the movement 
of water-borne coal from Nova Scotia to St. Lawrence River ports has been based on the 
excess of the laid-down cost of Canadian coal over that of imported coal. Although 
normal stockpiling costs prior to shipment have been regarded as a permissible cost 
element, the appropriation for 1959-60 (Vote 212) was charged with payments totalling 
$631,000 to reimburse collieries for the cost of extra stockpiling at the collieries in excess 
of current demand (an amount of $100,000 recovered from the Province of Nova Scotia 
by previous arrangement was included in the revenues of the department). 

In our opinion, these payments are questionable charges to an appropriation that 
provides specifically for "movements of coal". 

48. Construction costs of house at R.C.A.F. Station. Early in 1958 Treasury Board 
approval was obtained for the construction of a house for the use of a senior R.C.A.F. 
officer at a cost of $25,000, plus $9,950 for utilities and landscaping. The project was 
completed during the year under review, and an analysis by the department's Chief 
Auditor of the cost records maintained by the R.C.A.F. Construction and Maintenance 
Unit indicated that costs totalling $79,631 had been incurred — $56,716 for the house 
and $22,915 for the utilities and landscaping. 

When the matter was referred by a departmental administrative officer to the Air 
Force for investigation, it was found that there had been misunderstanding on the part 
of its Construction and Maintenance Unit in that it had assumed that the approved 
funds covered only the cash requirements for the project without restricting "contribu- 
tions" by way of Service labour and materials from stocks on hand. The cash outlays 
were within the approved amounts and it was the "contributed" costs that had resulted 
in the project exceeding the authorized limit. Moreover, the Air Force, pointing out 
that the house had been built in accordance with agreed plans and specifications, 
maintained that there were inaccuracies in the records and that certain costs totalling 

86281-3— 2J 



20 AUDITOR GENERAL'S REPORT 

$33,450, such as transportation to and from the site, rental value of Service equipment 
and a large portion of Service labour for engineering and supervision, should not have 
been charged to the project. 

Unless costs include indirect as well as direct elements, they can be seriously 
misleading. Realizing this, the department has issued instructions that in future estimated 
costs prepared with respect to all project requests must include the cost of all material 
whether purchased directly or supplied from stocks, and of all labour whether employed 
directly for the job or provided by departmental Service or civilian staffs — together with 
appropriate charges for overhead. 

49. Non-recovery of expenses incurred in lending Crown-owned property. In the 
summer of 1959 a number of NATO vessels w r ere invited to participate in a Naval 
show at the Canadian National Exhibition. Toronto. In order to transport personnel 
between the vessels and the shore, six landing barges were borrowed by the Department 
of National Defence from the Department of Transport, and a general understanding 
was reached with the Exhibition Association that any costs incurred in connection with 
these barges would be borne by the Association, although no formal agreement was 
concluded to tins effect. 

The cost of transporting the craft, together with certain conditioning expenses, was 
billed to and recovered from the Association by the Department of National Defence. 
However, it later developed that other expenses totalling $4,925 incurred by the depart- 
ment had been inadvertently omitted from the billing. This was directed to the attention 
of the Association, but up to the time of the completion of our examination, recovery 
had not been effected nor had liability for the additional charges been admitted by the 
Association. 

50. Mi dical expenses incurred for accidental injuries suffered by a deserter. During 
the course of our examination, we noted the case of a man who had joined the Navy 
in May 1956 and deserted two years later. In September 1959, while still absent without 
leave, he was seriously injured in an automobile accident. His hospital and medical 
expenses up to December 1959, when he was released from the Navy, cost the department 
$3,500. In addition, as the man is entitled to post discharge treatment for one year at 
public expense, and as he is a quadriplegic, it is estimated that a further outlay of at 
least $8,000 will be involved during that period. It was also noted that the man was 
released on medical grounds rather than on account of desertion and as a result was 
given a cash termination allowance of $419. 

The Navy carries deserters on strength indefinitely in order to impress on serving 
personnel the inviolability of their engagement in the Service. In this case, if the man 
had been in the Army or Air Force he would have been struck off strength automatically 
a year after His desertion and the Crown would have had no further financial responsibility 
for him. 



AUDITOR GENERAL'S REPORT 21 

As a result of our bringing this case to the attention of the Department of National 
Defence, the Navy's practice is now under consideration with a view to standardizing 
the practices of the three Services. 

51. Subsidization oj medical student officers. Undergraduate medical students may 
be enrolled as officers in the forces and receive subsidized education during their final 
years of study. A condition is that on completion of his course each officer will serve a 
three-year period in the Services. In exceptional and unforeseen circumstances the release 
of an officer at his own request may be authorized, but if the release takes place before 
he has completed three years' service after being licensed to practice, he is required to 
repay all or part of the cost of subsidization, including pay and allowances received. 

A case is now commented upon for the reason that it will take some 15 years to 
recover such costs from a released officer, under an instalment payment arrangement. 
The officer, on finishing his course early in 1959, applied for his release for financial 
reasons to take up civilian medical practice and tendered a certified cheque for $7,700 
to cover the costs to the department of subsidizing his education. Owing to the shortage 
of medical officers the application was refused and the cheque returned to the officer. 
Nine months later when the officer again sought his release on the grounds that his 
financial position had worsened, the department granted the release. However, he was 
not then in a position to reimburse the amount owing, so the department accepted his 
promissory note for $7,700, with interest at 5%, to be repaid at the rate of $75 a month 
commencing in March 1964 and ending in April 1975. 

On being released, this officer was paid, in cash, $719 of deferred pay that had 
accumulated to his credit. 

The pertinent regulations permit the Minister a discretion as to the amount to be 
refunded but are silent as to the method of collection. 

52. Unusual exercise oj executive discretion in awarding oj annuity under Canadian 
Forces Superannuation Act. An officer, aged 38, was released in January 1960 on grounds 
of inefficiency following an unexplained shortage of funds at a Naval station of which 
he was the supply officer. A Service Pension Board Minute noted that he had been 
involved in a similar occurrence in 1957 and stated that "his general physical and mental 
condition indicated a lack of stability and general suitability which, in the opinion of the 
appropriate authorities, made him incapable of performing the duties of an officer of his 
rank and branch". 

The release was effected under Section 49(h) of the Defence Services Pension Act, 
c. 63, R.S., which provided that a contributor who had served ten years or more and 
was retired for inefficiency should be paid one-half pension to age 65 and two-thirds 
thereafter. Pursuant to this section, the officer had been awarded an annual pension of 
$1,438. 



22 AUDITOR GENERALS REPORT 

The Canadian Forces Superannuation Act came into force on March 1, 1960 with 
retroactive application to July 8, 1959. The new Act provides, with regard to releases 
for inefficiency, that in the discretion of Treasury Board on the recommendation of the 
Minister, a contributor may he paid the whole or any part of any pension he would have 
been entitled to if he had been retired to promote economy and efficiency — in other 
words, for normal cause. Accordingly, the case was reviewed by the department and 
it sought and obtained Treasury Board approval for an annual pension based on 95% 
of the permissible maximum, or $2,732 during the lifetime of the officer. 

In cases of voluntary retirement before reaching compulsory retirement age, an officer 
is normally granted a pension reduced by 5 f /< for each year by which his age at retirement 
is less than the retirement age applicable to his rank. In the case referred to, the officer 
at the time of his release still had 11 years to serve in the Navy, so the establishment 
of the pension at 95% of the permissible maximum, in the circumstances mentioned, 
seems to constitute an unusual exercise of the discretionary authority given to the 
Treasury Board by the Act. 

53. Partial payment of ?ncss officer's salary from public funds. Early in 1957 a mess 
manager was appointed at an Air Force station at a monthly salary of $400 payable from 
mess funds. While serving in this capacity the man was also nominally appointed on 
December 1, 1957 as a kitchen helper in the mess and paid $175 per month from public 
funds as a locally engaged employee, the payment from mess funds being correspondingly 
reduced. He continued as mess manager on a full-time basis with his salary thus paid in 
part from public funds. This situation continued until December 31, 1959 and involved 
payments out of public funds to a total of $4,375 during a period of 25 months in which 
no services were in fact performed in the position for which the payments were ostensibly 
made. 

In October 1959 instructions were issued that the amounts paid from public funds 
since August 1958 were to be refunded. The nominal appointment as kitchen helper was 
terminated on December 31, 1959, and we have recently been informed that recovery 
is expected to be effected by means of monthly payments over a period of two years. 
commencing December 1960. 

54. Travel and removal expenses. The Department of National Defence spent $40 
million during the year under review on travel and removal expenses of servicemen and 
their dependents. In the course of our test examinations of these payments, a number of 
cases involving unnecessary or excessive costs came to our attention, of which the follow- 
ing are examples: 

1 . Regulations provide that a serviceman whose period of service is about to expire shall 
not be transferred to another unit unless he is re-engaged for a further term. In November 
1959 an airman was transferred, with his dependents, from Gimli, Manitoba, to Van- 
couver, although his term was to expire two months later and he was not being re-engaged. 
In January 1960 he took his release, and his transportation, along with his dependents, 
was paid to Halifax, his selected place of residence. Extra costs incurred by the transfer 
to Vancouver are estimated at $1,000. 



AUDITOR GENERAL'S REPORT 23 

2. A serviceman with less than 10 years' service is entitled, on release, to transportation 
and travelling expenses for himself and his dependents to the place in Canada where he 
enrolled or to any other place in Canada, provided the cost is not greater. An officer 
serving at Halifax selected Ottawa as his intended place of residence and shipped his 
furniture and effects there at public expense. He was paid, however, for amounts claimed 
as travelling expenses of himself and his wife to Victoria where he had enrolled. Regula- 
tions have since been clarified to prohibit the payment of transportation to other than 
the intended place of residence. 

3 . When furniture and effects of Service personnel are moved by road van at public expense 
it sometimes happens that delivery cannot be completed immediately on arrival of the 
shipment at its destination, ordinarily because the serviceman has been unable to find 
suitable accommodation at the new location. In such cases the shipments may be placed 
in storage in transit for which the minimum charge is $2.50 per hundredweight for periods 
of 30 days or less. Instances were observed where movers placed shipments in storage 
in transit for a day or so, for their own convenience, without first contacting the consignees 
who were frequently in a position to accept delivery. A number of refunds were obtained 
— in one case $208 — and the department has taken steps to curtail the unnecessary use of 
storage in transit facilities in future. 

4. Two Naval officers serving at Ottawa were posted to R.C.A.F. Station Centralia, where 
quarters and rations were provided, for a period of six weeks. They returned to Ottawa 
frequently and during the period in question spent more time there than they did at 
Centralia. As a result, one officer received $273 and the other $266 in per diem allowances 
for days spent at their home city. 

5. An officer who had been serving in Vancouver was posted to Victoria to attend a two 
months' course preparatory to serving on a ship then in the final stages of construction 
in Vancouver, where he had left his dependents. On completion of the course he returned 
to Vancouver and was continued in travel status to "stand by" the ship pending its 
commissioning. This did not take place for four months and the officer thus received $974 
in per diem travelling allowances during the period, although his home was in the city. 
We have recently been informed that recovery is being effected. 

In accordance with our usual practice, all such cases were drawn to departmental 
attention promptly with the object of achieving recovery where possible as well as 
bringing about improvement in the regulations. 

55. Interim allowances for lodgings and meals on transfer. When members of the 
forces with dependents are transferred from one place to another they are entitled, by 
regulation, to be reimbursed for expenditures incurred for lodgings and meals for periods 
required to find living accommodation and complete the moves. The maximum daily 
rates for lodgings and meals are based on costs at commercial establishments and vary 
according to the rank of the serviceman and the size of his family. Normally reimburse- 
ment is made for a period up to 21 days, but this may be extended in special circum- 
stances. During the course of the audit a number of cases were observed where liberal 
application of the regulation seemed to confer benefits beyond what was intended : 

1. While staying with relatives: 

Cases were noted where substantial payments were made for accommodation 
provided by relatives. For example, an officer with two dependents was paid $374 to 
cover the cost of his lodgings only, in the home of his parents for 34 days. 



24 AUDITOR GENERALS REPORT 

2. While awaiting possession of purchased accommodation: 

Experience has shown that rented accommodation can usually be obtained within 
the normal interim allowance period of 21 days. However, instances were noted 
where servicemen were paid interim allowances for 35 days — in one case amounting to 
$908 — while awaiting possession of homes purchased at new duty locations. 

3. While awaiting redccoration of home: 

An officer during a tour of duty outside Canada rented his home and upon his return 
decided to repair and redecorate it. He was paid $267 in interim allowances during a 
period of 19 days while he and his family occupied temporary accommodation. 

When the first two classes of cases were drawn to the attention of the department, 
instructions were issued calling for greater care and discretion in future before such re- 
imbursements were made. In the last case, the department considers that the officer was 
entitled to the allowance in question. 

5G. Reimbursement to servicemen for lease termination payments. The Department 
of National Defence is faced with a difficult administrative problem in dealing with 
servicemen who, having entered into leases for housing accommodation, are transferred 
to other localities or are ordered into departmental quarters prior to the expiration of the 
leases. In such cases, the department may, by regulation approved by the Governor in 
Council, reimburse the servicemen for the amounts paid to terminate their leases up to 
a maximum of three months' rent. 

Lease termination payments approximate $500,000 annually and the department's 
problem is to balance the cost to the public with the protection which should be afforded 
the servicemen. A serviceman is left free to make his own arrangements with his landlord 
in respect of both the term of the lease and the manner of its termination, and it appears 
that many landlords, being aware of the regulation, demand the maximum amount before 
agreeing to terminate the leases. No administrative responsibility is assumed for arranging 
sublets where the vacated premises are rented by landlords to other servicemen. In fact, 
some landlords anticipate this situation by incorporating in their leases a provision under 
which they may arbitrarily refuse to accept a subtenancy. 

57. Unemployment assistance contributions to provinces. In the 1957-58 report, 
comments were made regarding certain doubtful expenditures which had been shared by 
the Federal Government under the Unemployment Assistance Act, and it was observed 
that "audit opinion is that the statute includes ambiguities which have resulted in varying 
interpretations, and that the text merits further consideration". 

In the course of our initial audit of expenditure incurred under this Act in the 
Province of British Columbia, we noted that amounts claimed as shareable included 
allowances to provide for the maintenance of children living apart from their parents with 



AUDITOR GENERAL'S REPORT 25 

other families, usually relatives. These children were being assisted as individuals and not 
as part of a family unit entitled to receive unemployment assistance. The Department 
of National Health and Welfare concurred in our view that such payments were in respect 
of child welfare and not admissible as shareable expenditures under the Act. The depart- 
ment estimates that resultant overpayments to the province during the period from July 
1, 1955, the date the agreement was entered into with the province, up to March 31, 1959, 
are of the order of $360,000. Provincial authorities disagree with the stand taken by the 
department and with the method of calculating the amount in dispute. However, they 
agreed, without prejudice to their case, to overpayments totalling $40,724 from April 1 to 
August 31, 1959, being withheld from 1959-60 payments, and since August 31, 1959 the 
province has discontinued claiming for the allowances in question. 

A similar situation arose in connection with claims of the Province of Nova Scotia 
relating to children living apart from their parents. Although provincial officials have now 
agreed that payments by municipalities for the maintenance of children placed in homes 
by municipal authorities or children's aid societies are child welfare costs and therefore 
not shareable, they contend that assistance granted under Section 7(b) of the Provincial 
Social Assistance Act is shareable. This section provides that assistance may be granted 
to a person who has in his care or custody one or more children who are not being main- 
tained by their parents, if he is a suitable person to have custody of children and meets 
the requirements of a means test. The Department of National Health and Welfare shares 
our doubts as to the propriety of admitting such assistance payments as shareable on the 
grounds that they also are in the nature of child welfare costs. 

We also drew the attention of the department to inadmissible expenditure claimed 
for sharing by the Province of Alberta for pensions granted by the province to disabled 
persons, the province having overlooked the fact that, as many of the pensioners were 
inmates of hospitals and other institutions for the treatment of chronic conditions, as- 
sistance to them was not shareable under the Act. Provincial officials have agreed to re- 
examine all such pension payments with a view to excluding ineligible cases and 
establishing the amount of the overpayment (estimated at $80,000 in respect of claims for 
the period from January 1958 to October 1959). 

58. Grants to hospitals, etc., which care for Indians and Eskimos. In revising the 
1959-60 vote structure for the Department of National Health and Welfare, the vote 
"Grants to Hospitals which care for Indians and Eskimos" was combined with the vote 
for "Indian and Northern Health Services — Operation and Maintenance", the new text 
being "Operation and Maintenance, including Grants to Hospitals and Other Institutions 
which care for Indians and Eskimos". The amount provided for these grants was shown 
as a separate item of $220,000 in the Estimates' Details. During the year, grants paid to 
hospitals, individually authorized by Treasury Board, totalled $255,000, the excess being 
provided for by a transfer from the materials and supplies allotment. 



26 AUDITOR GENERALS REPORT 

As it has been long established practice that Parliament control grants to outside 
organizations, and as the grants in question had previously been provided for by a separate 
appropriation, the increase of the amount made available for this purpose by the Treasury 
Board is drawn to attention as a matter of interest. 

59. Determination of "sale price" for sales tax purposes. Section 30 of the Excise 
Tax Act requires sales tax to be calculated on the "sale price" of goods produced or 
imported into Canada, with certain stated exemptions. In the 1945-46 report it was 
noted that for some classes of goods sold under certain circumstances to other than 
wholesalers, the Department of National Revenue had authorized the manufacturers, 
by regulation, to compute the sales tax on less than the actual sale price. 

In 1955 a Sales Tax Committee was appointed to review and advise upon certain 
technical questions relating to the administration of the sales tax. Included in the Com- 
mittee's report, dated January 12, 1956, is the statement that "the Act does not appear 
to authorize the Minister to vary actual selling prices or to impute wholesale prices 
when they do not exist", and the Committee recommended that "the existing scheme 
of valuation be continued for the present with statutory sanction". 

Sale price is the amount charged to the buyer and there is no provision for any 
deviation. The method of valuation employed by the Department of National Revenue 
for sales tax purposes appears to rely on the general authority given in Section 38 of the 
Act, reading as follows: 

"The Minister of Finance or the Minister of National Revenue, as the case may be, may 
make such regulations as he deems necessary or advisable for carrying out the provisions 
of this Act." 

In our opinion, specific authority by Parliament is required if the tax is to be 
computed on less than the actual sale price of the goods. 

60. Commitment to the Northwest Territories in advance of appropriate authority. 
In November 1957 the Department of Northern Affairs and National Resources gave its 
concurrence to the Commissioner of the Northwest Territories entering into a contract 
with a firm of consulting engineers for the planning and construction supervision of a 
revised and extended water system and a sewage system at Fort Smith, N.W.T. This 
concurrence was given notwithstanding the fact that the project was one towards which 
the contribution of the Federal Government would be considerably greater than that 
of the Territorial Government. Fees under the contract were paid in full to the consulting 
engineers by the Territorial Government, and it was not until July 1959 that Executive 
authority was sought by the department for reimbursement of the Territorial Government 
for the department's share of the cost, as a charge to the appropriation for "Northwest 
Territories and Other Field Services — Construction or Acquisition of Buildings, Works, 
Land and Equipment" (Vote 279). 



AUDITOR GENERAL'S REPORT 27 

Because of the considerable responsibility of the Federal Government in the project, 
it would seem that the department's concurrence in the contract being entered into 
with the consultants should have been given only after the approval of the Treasury 
Board had been obtained. 

61. Extra costs resulting from seemingly insufficient consideration given before 
constructing boat harbour. In June 1957, the Department of Public Works called for 
tenders for the construction of a boat harbour at Erieau, Ontario, intended mainly for 
the use of local fishermen. As a result of delays in acquiring land for the site, the contract 
had not been awarded by October 4, 1957, when a petition signed by a group of the 
fishermen was received by the department, requesting that the plans for the harbour 
be revised. Accordingly the department decided to defer the project. 

On December 3, 1957, a second petition, signed by another group of fishermen, 
requested the department to proceed with the original contract. The firm that had 
submitted the lowest tender agreed to undertake the work at the tendered price of 
$154,545 and the contract was awarded to it on January 30, 1958. 

On April 14, 1958, a third petition renewed the request that the plans be changed 
and, on April 29th, the contract was cancelled. The plans were then revised and new 
tenders called and in due course a contract was entered into with another contractor 
for the construction of the harbour on the basis of the revised plans, at a cost of $192,526. 

Meanwhile, $61,890 of expenditures had been incurred by the original contractor 
prior to the cancellation of the contract, and this sum was reimbursed to him in August 
1959 and charged to the appropriation for "Ontario — Acquisition, Construction and 
Improvements of Harbour and River Works" (Vote 340). It was noted that $43,417 of 
this amount represented materials later used on the revised project, leaving $18,473 as 
the extra cost resulting from insufficient consideration having been given to alternative 
plans before proceeding with the project. 

62. Expenditure caused in advance of parliamentary sanction. On November 29, 
1958, a Treasury Board Minute authorized the Minister of Public Works to purchase a 
property in Vancouver, and directed that the expenditure be chargeable "against funds 
allocated for this purpose in the 1959-60 Estimates — 'Post Office Station E, Vancouver, 
B.C.' ". The Minute provided that interest would be payable at 5% of the purchase 
price of $50,000 from the date of the conveyance until the date of final settlement. 
Title to the property was acquired on February 18, 1959. Interest for the period from 
that date until May 31, 1959 was included in the payment which was then made and 
charged against the appropriation for "Acquisition, Construction and Improvements 
of Public Buildings— British Columbia" (Vote 329). 



28 AUDITOR GENERALS REPORT 

The acquisition of the property in this way, in advance of the provision of funds for 
the purpose, lacked conformity with the restriction contained in Section 13 of the Public 
Works Act that "nothing in this Act authorizes the Minister to cause expenditure not 
previously sanctioned by Parliament, except for such repairs and alterations as the ne- 
cessities of the public service demand''. Moreover, as a result of the action taken, interest 
costs were incurred to the extent of $699. 

G3. Dredging operations for the benefit of a private interest. In September 1959, a 
private company requested the Department of Public Works to carry out dredging opera- 
tions over its marine railway slip adjacent to the public harbour at Liverpool, N.S. 
Although the request was refused initially, the department finally agreed to do the work 
and the cost, amounting to $4,281, was charged to the appropriation for "Dredging — 
Maintenance and Operation of Plant and Contract and Day Labour Works" (Vote 347), 
instead of being recovered from the private company for whose benefit the dredging had 
been done. 

64. Questionable charge for construction of protection wall. Among the 1959-60 
appropriations for Harbours and Rivers Engineering Services under the Department of 
Public Works was Vote 345 which reads: 

Remedial works where damages are caused by, or endanger, navigation or Federal Government 
structures; and the completion of protection works already under way. 

Costs of $9,245 were incurred during the year under a contract entered into, in the amount 
of $20,264, for closing a gap in existing protection walls at Lac Megantic, P.Q. The existing 
works had been built by the government partly in 1936 and partly during the period from 
1949 to 1956. 

There appears to have been no question of any damage having been caused by or 
endangering navigation or Federal Government structures, the department relying on the 
words "completion of protection works already under way" as justification for undertaking 
the work. Our interpretation of the wording would restrict work to what is required to be 
done to complete a project which had been in progress at the end of the preceding fiscal 
year. 

65. Inadequate settlement re damages to wharf. In June 1959, the government wharf 
at Sturdies Bay, B.C., was damaged by a tanker which struck it while making a landing. 
The cost of repairing the wharf was $1,956. 

When the Department of Public Works sought to recover the cost from the tanker's 
owners, they offered only $1,174 in settlement, being 60% of the estimated original cost 
of the damaged portion of the wharf. This was on the grounds that the wharf had an 
estimated life of 15 years of which six had elapsed. The department accepted the 
settlement notwithstanding the fact that it is usual to recover the full cost of restoring 
damaged facilities, without taking depreciation into consideration. 



AUDITOR GENERAL'S REPORT 29 

66. Adjustment of pension to ex-member of R.C.M.P. Subsection (2) of Section 27 
of the Royal Canadian Mounted Police Superannuation Act, c. 34, 1959, provides that : 

"All claims for pension under this Part shall be dealt with and adjudicated upon in like 
manner as claims under the Pension Act, and all provisions of the Pension Act not inconsistent 
with this Part apply mutatis mutandis in respect of any claim under this Part." 

Section 20 of the Pension Act requires that any amount collected in respect of damages 
be taken into account in fixing the amount of a disability pension. 

A constable injured in an automobile accident received $5,000 in settlement of a civil 
action and was subsequently granted a disability pension for life. A review of the file 
indicated that the settlement had not been taken into account in fixing the pension. On 
attention being drawn to the case, administrative officers advised that payments were 
being suspended pending adjustment of the pension. 

67. Charges for annual fee for membership in international organization. Vote 380 
for the Department of Trade and Commerce reads: 

Departmental Administration, including fees for membership in the International 
Organizations listed in the Details of the Estimates $2,636,084. 

Included in the Details was an item for "International Sugar Agreement Fee $S,500''. 
This was to provide for Canada's share of the expenses of the International Sugar Council 
for 1959. The share actually amounted to $7,993 and was paid in April 1959, but the 
appropriation was charged with an additional payment of $7,818 in March 1960 for 
Canada's share of the Council's expenses for 1960. This made a total of $15,811 charged 
to the appropriation in the fiscal year 1959-60. Although the fees of the member 
countries become payable to the Council at the beginning of the calendar year for which 
they are assessed, Canada's practice, since 1954, had been to make payment only after 
April 1st, when funds became available for each fiscal year. 

The desirability of Canada paying its annual fee when due cannot be denied, but in 
view of the fact that Parliament provided a specific amount of $8,500 to cover the fee 
payment in 1959-60, we are of the opinion that no sum should have been paid in excess 
of that amount in the absence of a supplementary appropriation provided for the purpose. 

68. Contracts with Colombo Plan experts. At March 31, 1960 there were 33 persons, 
including a number of civil servants on leave without pay from their regular positions, 
under contract with the Department of Trade and Commerce to act as technical experts 
in connection with Canada's Colombo Plan Technical Assistance Program. Fees payable 
under these contracts were based on the expectation that they would be subject to income 
tax, and a clause in each contract required the technical expert to repay a stated amount 
should the fees not be taxable under the laws of Canada. 



30 AUDITOR GENERALS REPORT 

In some cases where technical experts were classed as non-residents and therefore 
not taxable, failure by the department to amend taxation clauses in the agreements, 
when periods of service were extended, placed such persons in a position to bargain. 
In one instance where an agreement covered a period of service of 24 months and 
provided for a repayment of $3,000 in the event that the fees proved not to be taxable, 
the period of service was extended twice before the repayment provision was amended. 
Then when the department wished to amend the agreement to provide for repayment 
of $10,500, the expert refused to sign and the department finally agreed to an amount 
of $4,900 plus two-thirds of any amount in excess of $4,900 that the Taxation Division 
might refund to the expert. It is not yet known what the actual benefit to the expert 
may have been. 

Obviously the system of including in the fee an amount which is to be refunded 
in the event that income tax is not payable is cumbersome and lends itself to abuse. 
If compensation is to be paid for income tax, it seems logical that reimbursement should 
be made only on production of the tax assessment notice and evidence of payment of 
tax. 

69. Repairs to landing craft without inviting tenders. Early in June 1959 the 
Department of Transport arranged with a Montreal firm with ship repairing facilities 
to inspect a number of landing craft at Frobisher, damaged by ice during the preceding 
winter. After the firm had commenced repairs, with departmental concurrence, it was 
asked to tender for the work involved and quoted a price of $245,415 which was accepted. 
The repair work was completed before Executive approval was sought on August 24, 
1959 and granted on September 17, 1959 for entry into a contract covering the work. 

This failure to obtain prior approval was contrary to Executive regulations govern- 
ing contracts, but what is of particular concern is that tenders had not been invited 
by public advertisement for execution of the work, as required by Section 36 of the 
Public Works Act. It is understood that, in future, repair work of this sort will be given 
consideration by the department at an earlier stage in order that firms in a position 
to undertake the work might be invited to tender and a competitive situation thereby 
established. 

70. Financial consequences of faulty preliminary engineering. In August 1957, the 
Department of Transport entered into a contract for development of an airport at 
Riviere-du-Loup. The lowest tender of $479,965, based on firm unit prices for estimated 
quantities, was accepted. After the work had been commenced it was found that the 
runway, the construction of which formed a major part of the project, had to be angled 
away from the location that had been erroneously staked out under direction of a 
departmental engineer, and that had been inspected by prospective bidders following 
the tender call. The correction of the deviation placed part of the runway over a 
large and deep area of muskeg which had to be removed and replaced with suitable 



AUDITOR GENERAL'S REPORT 31 

materials, some of which had to be purchased and hauled to the airport. In addition, 
a hummock of solid bedrock was uncovered outside of graded areas and had to be 
removed to provide aircraft take-off clearance. 

Negotiations with the contractor regarding the increased costs involved led to an 
amendment of the contract to permit settlement, on a cost plus fee basis, for $725,000. 
Any advantage that might have been gained from competitive bidding on this project 
was therefore lost through faulty preliminary engineering work. 

71. Questionable charges for aids to navigation. During the year under review, follow- 
ing the practice of previous years, approximately $223,000 was charged to the appropria- 
tion for "Aids to Navigation" (Vote 402) for expenditures incurred by the Department 
of Transport for the construction or acquisition of buoys, range lights and piers to define 
the boundaries of the deeper water navigation sections of the Canadian portion of the 
St. Lawrence Seaway. 

Section 10 of the St. Lawrence Seaway Authority Act, c. 242, R.S., reads in part: 
"The Authority is incorporated for the purposes of . . . acquiring lands for and constructing, 
maintaining and operating all such works as may be necessary to provide and maintain . . . 
a deep waterway between the Port of Montreal and Lake Erie . . ." The term "deep 
waterway" is defined by Section 2 as "adequate provision for navigation requiring a con- 
trolling channel depth of twenty-seven feet . . ." Section 16 provides that the costs to be 
defrayed by tolls include "the cost of operating and maintaining the canals and works 
under the administration of the Authority . . .". 

A reasonable assumption from the foregoing statutory provisions would seem to be 
that the cost of aids to navigation throughout the length of the Seaway should be included 
among the costs to be recovered through tolls, instead of being paid from public funds. 
The question of the propriety of charging the appropriation for "Aids to Navigation" 
with the cost of buoys, range lights and piers, as mentioned above, was raised with the 
department and it has recently advised us that it has placed the question before the 
Treasury Board for decision. 

72. Awards under the Pension Act. The determination of whether or not payments 
under the Pension Act, particularly those in respect of discretionary and compassionate 
awards, are in conformity with the Act presents special problems. Section 5 of the Act 
grants the Canadian Pension Commission full and unrestricted power and authority to 
deal with and adjudicate upon all matters and questions relating to the award, increase, 
decrease, suspension or cancellation of any pension and empowers the Commission to 
"determine any question of interpretation of this Act and the decision of the Commission 
on any such question is final". Owing to these broad powers and to apparent incon- 
sistencies in the Act, there is often room for doubt that the application given to the 
legislative provisions would commend itself to Parliament. The situation is illustrated 
in the following paragraphs. 



32 AUDITOR (GENERAL'S REPORT 

Sections 14, 36, 38, 39 and 45 of the Act each permit a pension award if the applicant 
is in a "dependent condition", defined as "the condition of being without earnings or 
income sufficient to provide maintenance". No mention is, however, made of the treat- 
ment to be given when the applicant has assets, and many instances have been observed 
where pension awards had been made to persons holding cash, securities and other assets 
in amounts which would have precluded them from receiving assistance under other 
legislation involving means tests. 

Since the amount awarded to an applicant in a dependent condition is based upon 
the additional income he requires to maintain himself, it follows that if the applicant 
had failed to disclose income, this would result in an overpayment. However, in a number 
of instances in which undisclosed income was noted and drawn to the attention of the 
Commission, the pension was simply adjusted currently and no overpayment was con- 
sidered as having occurred. 

An eligibility requirement for a pension award to a dependent parent under Section 38 
is that the parent was, or would have been at a later date, "wholly or to a substantial 
extent" maintained by the member of the forces. An assignment of pay, often of small 
amount, is usually accepted as the test of dependency, it being assumed that had the 
soldier survived, he alone would have borne the burden of support. Cases have been 
noted where as many as 12 surviving children make no contribution towards the support 
of the parent. 

Subsection (3) of Section 38 requires that for a parent, or person in the place of a 
parent, to be treated as having fallen into a dependent condition subsequent to the death 
of a member of the forces, the parent or other person must be "incapacitated by mental 
or physical infirmity from earning a livelihood". But subsection (7) provides that the 
pension to a widowed mother shall not be reduced on account of her earnings from personal 
employment and, on the strength of this, pensions awarded to widowed mothers under 
Section 38(3) are continued in payment even though they have been able to undertake 
full-time employment. 

Section 25 empowers the Commission to "grant a compassionate pension, allowance 
or supplementary award in any case that it considers to be specially meritorious, but in 
which the Commission has decided that the applicant is otherwise unqualified to receive 
such an award or supplementary award under this Act". For many years, outstanding 
war service was the dominant factor in making compassionate awards, but a recent review 
of payments made under this section indicated that the tendency had developed of 
viewing the term "specially meritorious" as "well deserving", without necessarily any 
military connotation. A number of cases were observed, for example, where additional 
pensions were paid in respect of wives whose marital status is not recognized under 
( 'anadian law. 






AUDITOR GENERAL'S REPORT 33 

Subsection (2) of Section 40 provides that not more than one pension shall be 
awarded in respect of the death of any one member of the forces "except when children 
are awarded pensions, or parents are awarded a pension jointly, or brothers or sisters 
are awarded pension, or a pension is divided among several applicants". This subsection 
would appear to contemplate limitation of a pension in respect of death to a single 
class of recipient such as to a widow, children or parents. But, in fact, other sections of 
the Act provide for payments in stated amounts to these classes and so one death can 
result in payments being made concurrently to a widow (section 37), children (section 
26) and parents (section 38). 

73. Revolving fund maximum balance exceeded. Vote 517 of Appropriation Act 
No. 5, 1958, authorized the operation of a revolving fund for the purpose of financing 
the manufacture of Remembrance Day poppies and wreaths, with the proviso that the 
amount to be charged to the revolving fund at any time was not to exceed $350,000. 
When this limit was reached in September 1959, an advance of $50,000 from the vote for 
"Miscellaneous minor or unforeseen expenses" (Vote 116) was authorized by the 
Treasury Board to supplement the Fund, with the proviso that the amount be "subject 
to recoupment from the first proceeds of the 1959 Campaign for sales of poppies and 
wreaths". 

Since the maximum amount of the Fund was fixed by Parliament at $350,000, its 
increase to $400,000, even temporarily, is open to question. 

74. Interpretation of the term "casual earnings" under the War Veterans Allowance 
Act. Section 6 of the War Veterans Allowance Act, 1952, provides that certain classes 
of receipts are not to be treated as income in determining eligibility for allowance 
payments, and the exempted classes include "any casual earnings of the recipient". The 
Act does not define the term "casual earnings" but the War Veterans Allowance Board 
has directed that earnings from part-time employment, even though of a continuing 
nature, be exempt to the extent of $50 a month, and that earnings from full-time 
temporary employment be exempt for the first twelve weeks of such employment in a 
year. 

This interpretation seems to go beyond what would ordinarily be accepted as a 
reasonable definition of the term "casual earnings". 

75. Extinguishment of debt due to the Crown for overpayment of allowance. An 
order in council authorized the Department of Veterans Affairs to accept $3,000 in cash 
in full settlement of a debt of $12,469, and approved "non-enforcement of payment of the 
balance of $9,469". The debt arose because a recipient of war veteran's allowance con- 
cealed his income from a business during a period of over 20 years and thus received 
allowances to which he was not entitled. The overpayment was discovered after his 
death when his widow was awarded a widow's allowance. An investigation of her financial 
position disclosed that the estate of the deceased included approximately $11,000 in 

86281-3—3 



34 AUDITOR GENERAL'S REPORT 

seven bank accounts, together with a house and a car. When the widow offered a 
compromise settlement of $3,000 in return for a "full and unequivocal discharge of the 
widow, her heirs, executors and administrators and the estate of the deceased veteran", 
the department accepted the offer and gave the discharge in the terms requested. 

To give a "full and unequivocal discharge" not only to the widow but also to her 
heirs is tantamount to extinguishing the debt, which is the sole prerogative of Parliament. 

76. Payments to civil servants additional to salary. Subsection (1) of Section 16 
of the Civil Service Act reads: 

"In the absence of special authority of Parliament, no payment additional to the salary 
authorized by law shall be made to any deputy head, officer, clerk or employee permanently 
employed in the Civil Service in respect of any service rendered by him, whether in the 
discharge of his ordinary duties of office or of any other duties that may be imposed upon 
him, or that he may undertake or volunteer to discharge or otherwise perform." 

Instances were noted during the year under review where honoraria, terminable allow- 
ances, etc., were authorized by the Executive, as charges to general votes, by relying on 
Section 60 of the Civil Service Act to permit the exemption of the positions from the 
operation of Section 16 in order that the extra payments might be made. Section 60 
reads as follows: 

"60.(1) In any case where the Commission decides that it is not practicable nor in the 
public interest to apply this Act to any position or positions, the Commission may, with the 
approval of the Governor in Council, exclude such position or positions in whole or in part 
from the operation of the Act, and make such regulations as are deemed advisable prescribing 
how such position or positions are to be dealt with." 

An example was the case of an honorarium of $1,000 paid to an officer of the Department 
of Finance and charged to the appropriation for "Departmental Administration" (Vote 
106). 

It has long been the Audit Office view that the phrase "special authority of Parlia- 
ment" in subsection (1) of Section 16 means that a special parliamentary appropriation 
or specific mention in the text of a general vote is a condition precedent to a payment- 
being made to a public officer additional to his salary. This has been the practice followed 
when civil servants have been called upon to render services to Royal Commissions. 

77. Civil servant working for two departments. Additional payments to civil servants 
who perform duties for more than one department are prohibited by subsection (1) of 
Section 16 of the Civil Service Act except where the Civil Service Commission, under 
subsection (2), authorizes a separate annual salary to be paid with respect to part-time 
services performed for each department. An instance was nevertheless observed where 
a doctor employed on a full-time basis at a Veterans Affairs hospital was also engaged 
in his spare time by the Department of National Defence as a consultant pathologist at 
a Naval hospital, and in 1959-60 he was paid about $1,700 for this service. 



AUDITOR GENERAL'S REPORT 35 

In addition to being contrary to the Civil Service Act, the arrangement also lacked 
conformity with the Naval regulations because, in order to comply in form with the 
regulations, the doctor's claims were submitted in such a way as to indicate attendance 
on specific duty days although, in fact, he gave service when required at week-ends and 
other off-duty times. 

78. Unauthorized salary payments beyond retirement age. The practice of setting 
up, as receivable, amounts equivalent to the salaries earned by employees during periods 
when they had been employed beyond retirement age without due authority, and later 
deleting the balances from the accounts as "uncollectible", was referred to in the 1956-57 
report and described as a "clumsy practice". 

In the year under review, 11 cases were noted where civil servants had been paid 
salaries in amounts totalling $80,000 during such periods, due, in most cases, to a lack 
of authentic information concerning the dates of birth of the recipients. 

Inasmuch as the problem of civil servants working beyond retirement age without 
the requisite prior approval appears to be a continuing one, it would be more realistic 
were 

(a) departments required to verify the age of employees before they are near retirement age 
in those cases where birth certificates had not been provided at the commencement of 
employment; and 

(b) employees who deliberately conceal their age penalized by withholding retirement leave, 
or by some other means. 

Consideration might also be given to providing the Governor in Council with authority to 
recognize work performed after retirement age and approve the employment beyond 
that age retroactively, when necessary. 

79. Overpayments of pension to former civil servants. Recovery of overpayments was 
noted as having been waived by the Governor in Council in three cases during the year 
under review, where pensions of retired civil servants had not been suspended during 
periods of re-employment. The resultant loss to the Superannuation Account amounted 
to $7,404. 

We are of the opinion that the waiving of recovery of overpayments of pension in 
such cases requires an appropriation by Parliament to replenish the Superannuation 
Account because this account should not be permanently charged with payments not 
authorized by the Public Service Superannuation Act. Moreover, recovery of the over- 
payments is possible. 

80. Unpaid accounts charged to new fiscal year. In the following instances the depart- 
ments concerned had incurred expenditures beyond what had been provided by parlia- 

86281-3— 3J 



36 AUDITOR GENERAL'S REPORT 

mentary appropriations for the year, and had avoided recording over-expenditure of the 
appropriations simply by carrying unpaid accounts forward to the 1960-61 fiscal year: 

1. In April 1956 the Department of Transport was authorized to enter into a contract for 
a term of four years commencing January 1, 1956 for the dredging of the St. Lawrence 
River Ship Channel below Montreal, and capital dredging costs amounting to $12,904,535 
were incurred during the term of the contract. Because the amount of $5,094,000 made 
available in 1959-60 by Vote 408, as supplemented by Vote 629, was inadequate to meet 
costs incurred in the year, $365,582 was carried forward as a charge to an appropriation 
provided in 1960-61 to meet costs incurred under a new agreement with the same con- 
tractor, for a term of two years commencing January 1, 1960. 

2. Vote 25, as supplemented by Votes 496 and 635, provided $8,187,000 for the payment of 
quality premiums on high grade hog carcasses by the Department of Agriculture. 
Payments to producers are made through the issue, at inspection points, of warrants 
negotiable at chartered banks. The banks are subsequently reimbursed for redeemed 
warrants by payments charged to appropriations provided annually for the purpose. 
Because the warrant is a negotiable instrument, the practice has been to charge the 
annual appropriations with the value of warrants outstanding at the close of each fiscal 
year and to credit a liability account, "Hog Premiums — Outstanding Warrants", with 
a like amount. However, the amount available in the appropriation as at March 31, 1960 
was inadequate for the purpose, with the result that $547,770 was carried forward as a 
charge to the 1960-61 appropriation. 

3. Vote 623 provided $25,000 for expenses of the Royal Commission on Coal. $24,975 was 
charged to the appropriation but additional accounts totalling $20,945 for services 
rendered prior to March 31, 1960 were carried forward as charges to 1960-61. 

The governmental accounts are kept on a cash basis, subject to year-end adjustment 
by reason of the provision of Section 35 of the Financial Administration Act that 
payments made during the thirty days following the end of the year, with respect to 
goods received and services rendered prior to the end of the fiscal year, may be charged 
to the accounts of that year. Where necessary, therefore, adequate supplementary- 
appropriations should be sought by departments when balances remaining in appropria- 
tions appear insufficient to absorb all charges likely to come in course of payment for 
goods and services required to be supplied by the year-end. 

81. Non-productive payments. A number of cases were observed in the course of 
our examinations where amounts were paid out for plans and designs and pre-production 
expenses although the projects never reached completion. The following cases illustrate: 

1 . An architect was engaged by the Department of Public Works in 1954 to prepare plans 
and specifications for, and to supervise the construction of, an addition to the postal 
terminal building in Halifax. In 1955 he submitted plans for premises which it was 
estimated would cost $1,250,000 to construct. When the Post Office Department requested 
that, instead, a new terminal building be provided, the requirements of the department 
were re-studied and eventually it was decided that an addition of a different type would 
meet requirements and could be constructed for about $800,000. The original architect 
was not re-engaged and payments totalling $37,500 were made for his services— $24,600 
in 1958-59 and the balance of $12,900 in 1959-60. 



AUDITOR GENERAL'S REPORT 37 

2. Early in 1958 the Treasury Board authorized the Department of National Defence to 
undertake an extension to a wharf at Dartmouth at an estimated cost of $800,000, to 
accommodate vessels of the Royal Canadian Navy, the Hydrographic Fleet of the 
Department of Mines and Technical Surveys and the Royal Canadian Mounted Police. 
A contract was placed for the planning and preparation of plans and specifications 
which, when completed, cost $39,515. Tenders were then called for the construction but 
when Treasury Board approval was sought for acceptance of the lowest bid of $823,591, 
it was withheld on the grounds that it had been decided to accommodate the Hydro- 
graphic Fleet elsewhere, and that no final decision had been reached regarding the 
berthing of R.C.M.P. vessels. 

3. A contract was placed for the Department of National Defence in May 1956 for the 
conversion of nine trucks into mobile workshops at a cost of $17,919. When the first truck 
was delivered to the contractor in July of that year it was found that it was considerably 
shorter than expected and unsuitable for the installation of the necessary equipment 
without a major rebuilding job. Notice of cancellation was given and during the year 
under review the contractor was paid $8,386 in settlement of pre-production expenses. 

82. Losses reported in the Public Accounts. Section 98 of the Financial Administra- 
tion Act directs that "every payment out of the Public Officers Guarantee Account and 
the amount of every loss suffered by Her Majesty by reason of defalcations or other 
fraudulent acts or omissions of a public officer, together with a statement of the cir- 
cumstances, shall be reported annually in the Public Accounts". The statement of losses 
included in the Public Accounts for 1959-60 was examined and it was ascertained that — 
except for losses suffered by the Post Office Department — every loss during the year 
which had been observed in the audit as being of a nature requiring to be reported in 
the Public Accounts is included in the listing. 

Following established practice, a listing is also included in the Public Accounts of 
those losses which were charged to the Post Office Guarantee Fund during the year ended 
March 31, 1960, but these charges were all with respect to losses that had been suffered in 
previous years. Losses totalling $37,237 that had been suffered during the year under 
review and that were still under investigation or with respect to which collections were 
still being made, were not included in the listing. In the Audit Office view, it would be 
more in keeping with the statutory requirement were Post Office losses suffered during 
the year included in the statement of losses published in the Public Accounts. 

83. Responsibility for loss oj public funds. From time to time cases have been 
observed where public funds in the custody of members of the forces have been lost 
under circumstances in which the custodians could give no satisfactory explanation and 
no evidence could be adduced as to what had happened. According to departmental 
legal officers, no specific regulation existed whereby the officers concerned could be held 
financially responsible for such losses. 

During the year under review a case was noted in which an accounting officer, 
finding himself short in his accounts, submitted fraudulent travel advance vouchers to 



38 AUDITOR GENERAL'S REPORT 

a total of $405. He was court martialled, pleaded guilty to charges of "making false 
entries" and "failing to account for public funds", and was dismissed from the service. 
The attention of the department was drawn to the case when it was observed that there 
was no intention to seek recovery of the amount of the shortage. Although, as in previous 
cases, the departmental legal officers were of the opinion that negligence had not been 
proven and therefore an administrative deduction could not be assessed, the department 
decided to refer the case to the Department of Justice for an opinion. The opinion 
received was to the effect that to take so strict a view of the present regulations 
concerning liability for public property "would permit a servant charged with the 
responsibility of accounting for his master's monies entrusted to him to evade that 
responsibility and the heavy presumption that his negligence caused the deficiency by 
simply stating that he could offer no explanation of the deficiency". As a result of this 
opinion, the $405 was recovered from monies withheld from the officer at the time 
of his dismissal. 

During the year a similar opinion was given by the Department of Justice in 
another case and resulted in a deduction of $1,000 against an officer who was short 
$2,000 and unable to explain the deficiency satisfactorily. 

It is understood that the department has under consideration amending the regula- 
tions to make it plain that an officer or man who has funds in his custody is responsible 
to make good any loss that may occur unless he is able to give a satisfactory explanation 
of the loss. 

84. Unusual payment from a special account of Canadian Wheat Board. Although 
the Auditor General is not the auditor of the Canadian Wheat Board, the unusual nature 
of a payment approved by an Order in Council out of a special account provided for by 
statute is regarded as bringing it within the scope of Section 70 of the Financial 
Administration Act, which requires the Auditor General to call attention, among other 
things, to any other case that he "considers should be brought to the notice of the House 
of Commons". 

Section 29A of the Canadian Wheat Board Act, as amended by c. 26, 1952-53, 
provides for the transfer to a "separate account", after the payment of certain costs, 
of undistributed balances that have been held by the Board for six years or more. Sub- 
section (2) of the section reads, in part: 

"Any balance transferred to the separate account . . . shall be used for such purposes as 
the Governor in Council, upon the recommendation of the Board, may deem to be for the 
benefit of producers." 

On September 23, 1959, an annex of one of the terminal elevators at Port Arthur 
collapsed, dumping into Lake Superior substantial quantities of wheat, oats and barley. 
Included in the loss was grain owned by the Canadian Wheat Board, to a value of 
$2,406,175, as evidenced by warehouse receipts. The company that operates the terminal 






AUDITOR GENERAL'S REPORT 39 

took the position that the Board as holder of the warehouse receipts, sustained the loss 
occasioned by the destruction of the grain to the extent of the warehouse receipts it held 
(although information on file indicates that the company did not take this position with 
respect to relatively small quantities of flaxseed and rye which were also lost, and with 
respect to which it honoured all outstanding warehouse receipts thereby absorbing the 
loss incurred). On the other hand, the Canadian Wheat Board took the position that 
its right against the company to deliver wheat, oats and barley in accordance with the 
terms of the warehouse receipts was unaffected by the destruction of the grain in the 
annex. 

The dispute was referred to the Minister of Trade and Commerce who, after discuss- 
ing the matter with the Chief Commissioner and other officials of the Board and with 
representatives of the company, recommended to the Governor in Council that a sum of 
$775,000 be paid out of the Separate Account in settlement of the balance of the loss, 
following payment by the company of $1,631,175. Having regard for the requirement of 
subsection (2) of Section 29A, quoted above, the Order in Council approving the payment 
recited that: 

"the Canadian Wheat Board recommends that if the Governor in Council considers such 
payment to be for the benefit of producers, a sum of $775,000 of the monies in the said 
Separate Account be used to pay the balance of the purchase price in the sum of $775,000 . . ." 

Summary of Assets and Liabilities 

85. Section 64 of the Financial Administration Act requires that there be included 
in the Public Accounts a statement certified by the Auditor General of "such of the 
assets and liabilities of Canada as in the opinion of the Minister [of Finance] are 
required to show the financial position of Canada as at the termination of the fiscal year". 

86. The Statement of Assets and Liabilities for the year ended March 31, 1960, with 
comparative figures at the end of the preceding year, prepared and certified in accordance 
with this requirement, is given as Appendix 2 to this report. The Statement was prepared 
on a modified cash basis, as in previous years, and explanations regarding certain aspects 
of this basis of presentation are included in the introduction to the Public Accounts, as 
follows : 

"With certain exceptions, taxes and revenues receivable, revenue and other asset accruals 
and inventories of materials, supplies and equipment are not recorded as assets (except when 
these are held as charges against working capital accounts or revolving funds) nor are public 
works and buildings or other fixed or other capital assets. Following the principle that only 
realizable or interest- or revenue-producing assets should be offset against the gross liabil- 
ities, costs of capital works are charged to expenditures at the time of acquisition or construc- 
tion. Consequently, government buildings, public works, national monuments, military assets 
(such as aircraft, naval vessels, and army equipment) and other capital works and equipment 
are recorded on the statement of assets and liabilities at a nominal value of $1 . . . 



40 



AUDITOR GENERAL'S REPORT 



"On the liabilities side, accrued liabilities (except for interest accrued on the public debt) 
are not taken into account in determining the obligations of the government. However, under 
section 35 of the Financial Administration Act, liabilities under contracts and other accounts 
payable at March 31 if paid on or before April 30 may be charged to the accounts for the 
year. These are recorded as accounts payable in the 'Current and demand liabilities' schedule 
of t he statement of assets and liabilities." 

Assets 

87. The following table lists the assets at March 31, 1960 by main headings in the 
Statement of Assets and Liabilities (Appendix 2) in comparison with the corresponding 
balances at the close of the two previous fiscal years: 



March 31. 1958 

Current assets $ 699,729,000 

Advances to the Exchange Fund Account . . 1,975,000,000 
Sinking fund and other investments held 

for retirement of unmatured debt 211,741,000 

Loans to and investments in Crown cor- 
porations 2,554,409,000 

Loans to national governments 1,487,985,000 

Other loans and investments 662,648,000 

Securities held in trust 22,646,000 

Deferred charges — Unamortized loan flota- 
tion costs 77,535,000 

Unamortized portion of actuarial deficiencies 139,000,000 

Suspense accounts 2,000 

Inactive loans and investments 90,854,000 

Total Assets 7,921,549,000 

Less — Reserve for losses on realization of 

assets 546,384,000 

Net Assets $ 7,375,165,000 



March 31, 1959 


March 31, 1960 


$ 910,944,000 
1,995,000,000 


$ 862,147,000 
1,960,000,000 


83,214,000 


85,272,000 


3,271,061,000 

1,448,960,000 

683,056,000 

20,742,000 


3,446,662,000 

1,414,528,000 

934,471,000 

30,612,000 


147,431,000 

465,300,000 

2,000 

92,216,000 


150,993,000 

465,300,000 

33,000 

93,539,000 



9,117,926,000 
546,384,000 



9,443,557,000 
546,384,000 



$ 8,571,542,000 $ 8,897,173,000 



88. Current assets. The balances included under this heading at March 31, 1960 with 
the comparable balances at the close of the two previous years were: 



March 31, 1958 

Cash $ 468,013,000 

Departmental working capital advances and 
revolving funds: 
Agricultural commodities stabilization ac- 
count 26,524,000 

Defence production revolving fund 54,576,000 

Other 49,181,000 

130#81,000 

Securities investment account 79,846,000 

Other current assets 21 ,589.000 



March 31, 1959 March 31, 1960 
$ 640,459,000 $ 565,436,000 



67,078,000 

30,161,000 

54,743,000 

161,983,000 

98,031,000 
20,472,000 



120,698,000 
20,667,000 
54,645,000 

196,010,000 

77,863,000 
22,838,000 



$ 699,729.000 S 910,944,000 S 862,147,000 



AUDITOR GENERAL'S REPORT 41 

The increase of $53,620,000 (80%) in the Agricultural Commodities Stabilization 
Account at March 31, 1960 compared with the corresponding balance at the end of the 
preceding year was largely accounted for by increases of $53,249,000 (256%) in the inven- 
tory of pork and $9,864,000 (30%) in the inventory of butter, less a decrease of $9,345,000 
(94%) in the inventory of dry skimmed milk. The reduction of $9,494,000 (31%) in the 
Defence Production Revolving Fund resulted largely from the repayment to the Fund by 
Canadian Arsenals Limited of $7,500,000 of working capital advances. 

89. Advances to the Exchange Fund Account. The purpose of the Exchange Fund 
Account, which is operated on behalf of the Minister of Finance by the Bank of Canada, 
is "to aid in the control and protection of the external value of the Canadian monetary 
unit". 

The advances to the Account at March 31, 1960 are included in the Statement of 
Assets and Liabilities at their full total of $1,960 million. A parenthetical note associated 
with the item explains that the value of the investments from advances was $1,746 million 
at March 31, 1960, indicating an unrecorded deficiency of $214 million. The following 
briefly summarizes the nature of this deficiency: 

Net loss on dealings in gold and foreign currencies and securities and on revalua- 
tions of gold and foreign currencies, since establishment of the Exchange Fund 
Account in 1935 $ 136,000,000 

Exchange loss arising from valuation of United States dollar holdings at the 
exchange rate of $0,953 at March 31, 1960 78,000.000 



$ 214,000,000 



Comment is made in paragraph 106 regarding the practice of carrying the advances 
made to the Exchange Fund Account without adjustment for the deficiency shown above. 

90. Sinking fund and other investments held for retirement of unmatured debt. The 
following is a summary of the balances comprising this item at March 31, 1960 in com- 
parison with the corresponding balances at the close of the two previous years: 

March 31. 1958 March 31, 1959 March 31, 1960 



Investments held for sinking fund main- 
tained with respect to Newfoundland 
loans assumed under Terms of Union . .$ 13.886,000 $ 14,931,000 S 15,960,000 

Additional investment in Newfoundland 
guaranteed stock held for retirement of 
Newfoundland loans 18,761,000 18,811,000 19,822,000 

Investments held for retirement of loans 
payable in New York 179,094,000 49,472.000 49,490,000 



$ 211.741.000 $ 83.214,000 $ 85,272,000 



42 AUDITOR GENERAL'S REPORT 

91. Loans to and investments in Crown corporations. The following table lists these 
loans and investments at March 31, 1960 with the comparable balances at the close of 
the two previous years: 

March 31, 1958 March 31, 1959 March 31, 1900 

Central Mortgage and Housing Corporation $ 668,017,000 $ 1,003,576,000 $ 1,318,683,000 

Canadian National Railways 1,266,227,000 1,468,179,000 1,207,808,000 

The St. Lawrence Seaway Authority 176,743,000 282,819,000 315,927,000 

National Harbours Board 125,431,000 145,632,000 161,398,000 

Northern Ontario Pipe Line Crown Cor- 
poration 70,750,000 113,500,000 121,500,000 

Farm Credit Corporation 65,172,000 87,219,000 115,700,000 

Atomic Energy of Canada Limited 56,044,000 58,789,000 59,374,000 

Northern Canada Power Commission .... 14,355,000 21,639,000 34,585,000 

Polymer Corporation Limited 30,000,000 30,000,000 30,000,000 

Canadian Overseas Telecommunication 

Corporation 12,636,000 12,979,000 22,590,000 

Other balances 69,034,000 46,729,000 59,097,000 

$ 2,554,409,000 8 3,271,061,000 S 3,446,662,000 



The S315 million increase in the investment in the Central Mortgage and Housing 
Corporation resulted from loans of $352 million being made to the Corporation during the 
year, under Section 22 of the Central Mortgage and Housing Corporation Act, less 
repayments in respect of loans made in previous years. 

The decrease of $260 million during the year in the loans to and investment in the 
Canadian National Railways resulted from repayments of advances to the extent of 
$490 million, while advances made to the company under annual Canadian National 
Railways Financing and Guarantee Acts amounted to $208 million, and purchases of 4% 
preferred stock under Section 6 of the Canadian National Railways Capital Revision Act, 
c. 311, R.S., amounted to $22 million. 

The $59,097,000 of "other balances" at March 31, 1960 included loans to or invest- 
ments in the following corporations: National Capital Commission, $17,742,000; Export 
Credits Insurance Corporation, $10,000,000; Eldorado Mining and Refining Limited, 
$8,247,000; Canadian Arsenals Limited, $7,500,000; Canadian Commercial Corporation, 
$6,000,000; and Bank of Canada, $5,920,000. 

92. Loans to national governments. The following is a listing of the balances of these 
loans at March 31, 1960 in comparison with the corresponding balances at the close of 
the two previous years: 

March 31, 1958 March 31, 1959 March 31, 1960 

Belgium S 43,833,000 $ 41,526,000 $ 39,219,000 

France 169,000,000 160,550,000 152,100,000 

India 16,173,000 33,000,000 33,000,000 

Netherlands 89,504,000 84,340,000 79,177,000 

United Kingdom 1,163,397,000 1,124,703,000 1,108,287,000 

Other countries 6,078,000 4,841,000 2,745,000 

S 1,487,985,000 S 1,448,960,000 $ 1,414,528,000 



AUDITOR GENERAL'S REPORT 



43 



Of the $34 million decrease during the year under review, $18 million resulted from 
repayments by Belgium, France, the Netherlands and Norway, of loans made to them 
under the provisions of the Export Credits Insurance Act, while $16 million was repaid 
by the United Kingdom on the loan authorized by the United Kingdom Financial 
Agreement Act, 1946. 



93. Other loans and investments. The balances comprising this asset item at March 
31, 1960, with the comparable balances for the two previous years, were: 



Subscriptions to capital of and working 
capital advances and loans to interna- 
tional organizations 

Veterans' Land Act advances 

Less — Reserve for conditional benefits . . 

Loans to provincial governments 

Old Age Security Fund, temporary loan . 
Balances receivable under agreements of 

sale of Crown assets 

Other balances 



March 31, 1958 

r 


March 31, 1959 


March 31, 1960 


% 372,561,000 


$ 


369,916,000 


$ 


605,175,000 


201,733,000 




192,857,000 




188,903,000 


47,760,000 




41,857,000 




37,277,000 


163^73,000 




151,000,000 




161,626fi00 


70,828,000 




96,339,000 




90,397,000 
28,001,000 


21,963,000 




19,105,000 




15,982,000 


43,323,000 




46,696,000 




43,290,000 



$ 662,648,000 $ 683,056,000 S 934,471,000 



The increase of $235 million (64%) in the first of these items during 1959-60 was due 
to the increase of that amount in Canada's subscription to the capital of the Interna- 
tional Monetary Fund. The $28 million temporary loan to the Old Age Security Fund 
represented the deficit from the Fund's transactions for 1959-60 carried forward to 
1960-61; in the preceding year the deficit in the Fund's operations was charged to 
budgetary expenditures (see paragraph 28). This accounting treatment stems from the 
decision, stated in the Budget Speech of April 9, 1959, to carry the deficit forward to 
1960-61, in anticipation that it would be covered by increased receipts credited to the 
Fund as a result of the increased rates of old age security tax. 

94. Securities held in trust. The net increase of $10 million (48%) in this item is 
more than accounted for by the inclusion in 1959-60 for the first time of $14 million of 
security bonds lodged by various departments with the Securities Deposit Branch of the 
Department of Finance. The most significant amounts were $6 million of guarantee 
deposits with the Department of Northern Affairs and National Resources in connection 
with permits for exploratory work with respect to oil and gas on territorial lands, and $6 
million of guarantee deposits with the Department of National Revenue to secure 
payment of customs duties and excise taxes on certain products released in advance. 

95. Unamortized portion of actuarial deficiencies. The amounts appearing under this 
caption in the Statement represent the extent to which the balances at credit of the Public 



44 AUDITOR GENERAL'S REPORT 

vice Superannuation Account and the Canadian Forces Superannuation Account — 
apart from the non-cash entries referred to in paragraphs 107 and 108 — fell short of the 
estimated actuarial liabilities of the two pension plans, calculated as at December 31, 1951 
and March 31, 1958, respectively. 

In our opinion, there should be a plan, approved by Parliament, for amortizing the 
balances of these two actuarial deficiencies, aggregating $465,300,000 at March 31, 1960, 
if they are to continue to be carried as "assets" on the Statement and if the offsetting 
credits are to remain in the two superannuation accounts. Explanations regarding these 
credits are given in paragraphs 107 and 108. 

96. Inactive loans and investments. The $93,539,000 shown for this item in the State- 
ment at March 31, 1960 comprised the following balances: 

Loan to China, in 1946, under the Export Credits Insurance Act $ 49,426,000 

Loans to Greece and Roumania, in 1919, for the purchase of goods produced in 
Canada 30,854.000 

Balance arising out of implementation of guarantee, given under the Export 
Credits Insurance Act, of loans by chartered banks to Ming Sung Industrial 
Company (carrying prior guarantee by the Government of China) 13,185.000 

Loan to Province of Saskatchewan, in 1908, for the purchase of seed grain 74,000 

$ 93,539,000 



The amount shown for the third item in the above listing is $1,323,000 greater than the 
corresponding amount at March 31, 1959 by reason of a payment covering $1,275,000 of 
principal and $48,000 of interest during 1959-60 under the terms of the guarantee. A 
contingent liability exists to meet the final payment of $1,285,000 in 1960-61. covering 
$1,275,000 of principal and $10,000 of interest. 

Liabilities 

97. The following table lists the liabilities at March 31, 1960 by main headings in the 
Statement of Assets and Liabilities (Appendix 2) in comparison with the corresponding 
balances at the close of the two previous fiscal years: 

March 31, 1958 March 31, 1959 March 31, 1960 

Current and demand liabilities $ 877,751,000 $ 952,560.000 $ 1,099,057,000 

Deposit and trust accounts 187,037,000 237,917.000 242,673,000 

Annuity, insurance and pension accounts . . 2,712,813,000 3,301,861,000 3,565,376.000 
Undisbursed balances of appropriations to 

special accounts 285.367,000 83,3S7,000 96,620,000 

Deferred credits 76,813,000 81,429,000 83,961.000 

Suspense accounts 36,551,000 18,661,000 8,528,000 

Unmatured debt 14.245.107,000 15,574,113.000 15,890,152.000 

8 18,421,439,000 $20,249,931,000 $20,986,367,000 



AUDITOR GENERAL'S REPORT 45 

98. Current and demand liabilities. The balances comprising this item in the State- 
ment at March 31, I960 were: 

Non-interest-bearing notes payable to the International Monetary Fund and the 

International Bank for Reconstruction and Development $ 381,828,000 

Accounts payable 245,099,000 

Outstanding Treasury cheques 228,768,000 

Interest accrued 137,622,000 

Other balances 105,740,000 



$1,099,057,000 



The only significant change in any of these balances during the year under review 
was an increase of $176 million in the first amount, due to the issue of additional non- 
interest-bearing notes payable to the International Monetary Fund as part of the increase 
in Canada's subscription to the capital of the Fund (see paragraph 93). 

99. Deposit and trust accounts. The following is a summary of the balances included 
in this item at March 31, 1960: 

United States Strategic Air Command S 33,927,000 

Post Office Savings Bank 29,372,000 

Indian trust funds 29,224,000 

Contractors' security deposits 27,705,000 

Deposits by Crown corporations 19,269,000 

Contractors' holdbacks 17,398,000 

Korean Operations Pool 16,104,000 

Guarantee deposits 14,345,000 

Canadian Pension Commission (Administration trust fund) 10,281,000 

Other balances (77 in number) 45,048,000 



S 242,673.000 



The accounts of the Korean Operations Pool are maintained by the Australian Gov- 
ernment, and record the expenditures incurred by the Commonwealth countries which 
had participated in the Korean war, and the apportionment of these expenditures among 
the countries according to their respective shares. Canada received $9,293,000 during the 
year ended March 31, 1960 as its share of the proceeds from the disposal of Pool equipment 
and stores. After crediting this amount, and charging $573,000 as Canada's share of logistic 
support, the balance of $16,104,000 at the credit of the account, as shown in the above 
table, represents the amount available towards settling the remainder of Canada's share 
of the expenditures when other participating governments submit their billings to the 
Pool. 



46 AUDITOR GENERAL'S REPORT 

100. Annuity, insurance and pension accounts. The following is a listing of the 
balances making up this item at March 31, 1960 in comparison with the corresponding 
balances at the close of the two previous years : 

March 31, 1958 March 31, 1959 March 31, 1960 

Government annuities $ 1,047,641,000 $ 1,105,825,000 S 1,156,867,000 

Public Service Superannuation Account .... 1,045,760,000 1,136,022,000 1,229,620,000 

Canadian Forces Superannuation Account . . 513,869,000 942,315,000 1,053,011,000 

Other balances 105,543,000 117,699,000 125,878,000 



S 2,712,813,000 $ 3,301,861,000 $ 3,565,376,000 



The balance at the credit of the Government Annuities Account at the close of each 
fiscal year represented the actuarial liability in respect of outstanding annuity contracts. 
This was after annually crediting the Account (with a corresponding charge to Expend- 
iture) with the amount required to adjust the balance to the year-end actuarial liability, 
as is required by Section 15 of the Government Annuities Act, c. 132, R.S. 

Section 32 of the Public Service Superannuation Act, c. 47, 1952-53, requires that 
credits be given to the Public Service Superannuation Account (with corresponding 
charges to Expenditure) for the following: 

(a) interest on balances at credit of the Account; 

(b) annual contributions matching the total amounts of contributions by employees in respect 
of current service; 

(c) annual contributions, as determined by the Minister, matching amounts of contributions 
by employees in respect of past service; and 

{d) amounts to provide for the increase in cost to the Crown of benefits payable as a result 
of salary increases of general application to the Public Service. 

The year-end balances at the credit of the Account, as shown in the above table, were 
after recording these statutory credits along with credits for employees' contributions. 
The balances also include $139,000,000 which resulted from a non-cash entry made in a 
previous year, crediting the Account to increase the balance to the amount of the actu- 
arial liability and charging an account called "unamortized portion of actuarial deficiency 
in the Public Service Superannuation Account" (see paragraph 107). 

The balances at the credit of the Canadian Forces Superannuation Account at March 
31, 1960 and at the close of the preceding year were after crediting, in addition to 
members' contributions, amounts provided by means of annual parliamentary appropria- 
tions (at one and two-thirds of the contributions by members of the forces) together with 
interest on the balances at credit of the Account. The balance was augmented by a non- 
cash credit of $326,300,000 to the Account in 1958-59, with a corresponding charge to an 
account called "unamortized portion of actuarial deficiency in the Canadian Forces Super- 
annuation Account" (see paragraph 108). 



AUDITOR GENERAL'S REPORT 47 

The "other balances" in the liability item "annuity, insurance and pension accounts" 
includes the uninvested portion of the Unemployment Insurance Fund on deposit with 
the Receiver General— $22,765,000 at March 31, 1960. The amount of the Fund at the 
close of the 1959-60 fiscal year was $377,258,000 (see also paragraph 109). 

101. Undisbursed balances of appropriations to special accounts. The following is a 
listing of the balances comprising this item in the Statement of Assets and Liabilities, 
compared with the corresponding balances for the two previous years: 

March 31, 1958 March 31, 1959 March 31, 1960 

Colombo Plan Fund $ 60,368,000 $ 59,878,000 $ 62,966,000 

Railway Grade Crossing Fund 12,648,000 22,560,000 31,196,000 

National Capital Fund 543,000 860,000 2,360,000 

Other 69,000 89,000 98,000 

National Defence Equipment Account .... 211,739,000 

$ 285,367,000 $ 83,387,000 $ 96,620,000 



During the year ended March 31, 1960 an amount of $50 million provided under 
Vote 98 was credited to the account for the Colombo Plan, while expenditures totalling 
$46,912,000 were charged to the account for aid given to countries in South and South- 
East Asia. 

Amounts totalling $15 million, provided under Section 265 of the Railway Act and 
Vote 444, were credited to the account for the Railway Grade Crossing Fund during 
1959-60, while expenditures totalling $6,364,000 were incurred in aiding in the cost of 
installation of protective devices at railway grade crossings and in the cost of grade 
separations. 

During the year ended March 31, 1960 an amount of $4,000,000 provided under 
Vote 307 was credited to the account for the National Capital Fund, while amounts 
totalling $2,500,000 were paid over to the National Capital Commission to finance the cost 
of capital projects approved by the Governor in Council. 

The $211,739,000 balance of the National Defence Equipment Account at March 31, 
1958 was utilized in absorbing certain expenditures of the Department of National De- 
fence during the year ended March 31, 1959 (see paragraph 27). 

102. Deferred credits. The following is an analysis of this item at the close of the 
1959-60 fiscal year: 

Deferred interest on loans made under the United Kingdom Financial Agreement 

Act, 1946 $ 44,174,000 

Deferred interest on loans to The St. Lawrence Seaway Authority 19,427,000 

Credits arising from the recording of agreements of sale of Crown assets 13,554,000 

Equity in agency account of Crown Assets Disposal Corporation 5,603,000 

Other balances 1,203,000 

$ 83,961,000 



48 AUDITOR GENERAL'S REPORT 

The only significant change during the year was the increase of $6,608,000 in the deferred 
interest on loans to The St. Lawrence Seaway Authority. This deferred interest will be- 
come payable by the Authority commencing in 1963, along with repayments of principal 
and current interest. 

103. Suspense accounts. The only large balance included in this item on the liabilities 
side of the Statement of Assets and Liabilities at March 31, 1960 was that of $3,623,000 
at the credit of the Replacement of Materiel Account maintained pursuant to Section 11 
of the National Defence Act. Amounts credited to the Account during the year for the 
proceeds of sales to other countries of "materiel not immediately required", totalled 
$3,841,000, while the amounts applied towards the procurement of materiel during the 
year totalled $14,063,000. There was accordingly a reduction of $10,222,000 during the 
year in the balance of the Account. 

104. Unmatured debt. A summary of the unmatured debt outstanding at March 31, 
1960, in comparison with balances outstanding at the close of the two previous years, 
is as follows : 

March 31, 1958 March 31, 1959 March 31, 1960 

Bonds : 

Payable in Canada S 12,368,296,000 $ 13,777,302,000 $ 13,563,341,000 

Payable in London 51,811,000 51,811,000 51,811,000 

Payable in New York 300,000,000 150,000,000 150,000,000 

; 2,720,107,000 13,979,113,000 13,765,152,000 

Treasury Bills 1 .525,000,000 1,595,000,000 2,125,000,000 

S 14,245.107,000 §15,574,113,000 $15,890,152,000 



Net Debt 

105. With the Liabilities amounting to $20,986,367,000 (paragraph 97) and the 
Assets to $8,897,173,000 (paragraph 87), the Net Debt at March 31, 1960 was 
$12,089,194,000. The following is an analysis of the Net Debt Account for the year 
under review: 

Balance at March 31, 1959 $ 11,678,390,000 

Deduct— Write-up of loans to: 

City of Montreal re Atwater Avenue Tunnel $ 2,000,000 

City of Vancouver re Airport Terminal Buillin? 306,000 

2,306,000 



Add— Deficit for the fiscal year 1959-60: 

Expenditure 5,702.861,000 

Revenue 5,289,751 ,000 



11.676,084,000 



413,110,000 



Balance at March .11 . 1960 . S 12.089,191,000 



AUDITOR GENERAL'S REPORT 49 

The credits resulting from the write-up of the two loans were the amounts, as determined 
during the year, to be recovered under the terms of the agreements with the respective 
cities as their shares of the construction costs of the projects mentioned. The full amount 
of the cost of each project had been charged to Expenditure in previous years. 

Comments on Asset and Liability Items 

106. Advances to Exchange Fund Account. In paragraph 89 reference is made to 
the composition of the unrecorded deficiency between the advances to the Exchange 
Fund Account, included in full as an asset in the Statement, and the value of investments 
from advances at the year-end. 

As the net loss amounting to $136 million on dealings in gold and foreign currencies 
and securities, and on revaluations of gold and foreign currencies, represented a cost 
of exchange management over the period since the establishment of the Account, we 
are of the opinion that it should be written off in the accounts of Canada with 
parliamentary authority. 

The Currency, Mint and Exchange Fund Act, under which the Exchange Fund 
Account operates, makes provision for payment of interest earnings to the Receiver 
General within three months after the end of each calendar year. In our opinion, con- 
sideration should be given to transferring annually to the Consolidated Revenue Fund 
the profit or loss resulting from trading operations and revaluations of holdings. 

107. Public Service Superannuation Account. In paragraph 100 mention is made 
of the fact that the balance of the Public Service Superannuation Account, forming part 
of the "annuity, insurance and pension accounts" item, included $139,000,000 which 
resulted from a non-cash entry made in a previous year, which at the same time set up 
an offsetting "asset" item called "unamortized portion of actuarial deficiency in the 
Public Service Superannuation Account". It is understood that the Department of 
Finance relied for the making of this entry (which increased the balance at the credit 
of the Account to an amount equal to the actuarial liability) on the general direction 
given by Section 64 of the Financial Administration Act that the Statement include 
"such of the assets and liabilities of Canada as in the opinion of the Minister are 
required to show the financial position of Canada as at the termination of the fiscal year". 

In the Audit Office view, as has been mentioned in previous annual reports, the 
Account should have been credited only with amounts provided for by the Public 
Service Superannuation Act. The actuarial deficiency in the Account at the year-end 
should, in the opinion of the Audit Office, have been disclosed by means of a footnote 
to the Statement of Assets and Liabilities. 

Another point that is of audit concern was mentioned in the report for 1954, namely, 
that when the balance is increased through the crediting of amounts that are not provided 

86281-3—4 



50 AUDITOR GENERAL'S REPORT 

for by statute, a question arises as to the legality of charging Expenditure for the extra 
amount of interest credited annually ($7,994,000 in 1959-60) as the Act authorizes 
interest to be credited only "on the balance at credit of the Account". 

No special appropriation was provided during the year under review to reduce the 
actuarial deficiency. An actuarial report dated August 1959 indicated that the deficiency 
had increased from $139 million to $277 million at December 31, 1957. 

108. Canadian Forces Superannuation Account. In paragraph 100 reference is made 
to the non-cash entry of $326,300,000 which gave credit to this Account in 1958-59, with 
a corresponding charge being made to the "asset" account entitled "unamortized portion 
of actuarial deficiency in Canadian Forces Superannuation Account". In the Audit 
Office view, amounts additional to contributions by members of the forces should be 
credited to the Account only when authorized by parliamentary appropriations. The 
question of the propriety of charging Expenditure for the additional interest credited 
annually ($13,651,000 in 1959-60) by reason of the enlargement of the balance at credit 
of the Account arises in the same way as in the case of the Public Service Superannuation 
Account mentioned in the preceding paragraph. 

Not only was no special appropriation provided to reduce the actuarial deficiency 
during the year under review but, the rates of contribution having remained the same, 
the deficiency has undoubtedly increased. A reason is that the Canadian Forces Superan- 
nuation Act, c. 21, 1959, which replaced the Defence Services Pension Act with effect 
from July 8, 1959, permits benefits greater than had been provided under the former 
Act, for example : 

(a) Under the former Act a member of the forces who had served for 10 years or more and 
was released because of inefficiency in the performance of his duties was entitled to only 
one-half pension to age 65 and two-thirds pension thereafter. The present Act continues 
this entitlement but also permits a larger award to be made at the discretion of the 
Treasury Board (for example, an officer released because of inefficiency was awarded a 
pension of $2,732 a year instead of the statutory minimum of $1,438, as mentioned in 
paragraph 52). 

(6) Under the former Act a member of the forces who had served for less than 20 years and 
retired voluntarily was entitled only to a return of his contributions. The present Act 
provides, as an alternative, for an award of pension at the discretion of the Treasury 
Board if the member has served for 10 years or more (for example, a 42 year old officer 
who had contributed only $5,481 to the Fund was granted an annuity of $1,526, having a 
capital value of approximately $38,000, after serving some 17 years). 

109. Unemployment Insurance Fund. In paragraph 100 reference is made to the 
practice of including in the item for "annuity, insurance and pension accounts" only 
the uninvested portion of the Unemployment Insurance Fund. There may be technical 
arguments in favour of this method of presentation since, under the Unemployment 
Insurance Act, the investments of the Fund are held in trust by the Bank of Canada 






AUDITOR GENERAL'S REPORT 



51 



for the Unemployment Insurance Commission. However, the practice places the Unem- 
ployment Insurance Fund in a position similar to a Crown corporation although, unlike 
such a corporation: 

(a) all the receipts of the Commission flow into the Consolidated Revenue Fund and all 
disbursements made for purposes of the Fund are paid out of the Consolidated Revenue 
Fund; and 

(b) the Commission is not required by statute to prepare annual financial statements subject 
to audit. 

It is therefore the Audit Office view, as was stated in the report for 1956-57, that 
the practice of including in the liability item only the uninvested portion of the Fund 
should be further considered. Were the full amount of the Fund to be included in the 
item, the securities held at the year-end would be carried as a contra item on the Assets 
side of the Statement. 



The balance at credit of the Fund at March 31, 1960 was $365,892,000, a decrease 
of $560,885,000 from its highest level of $926,777,000 in December 1956. The large 
decrease in the balance at credit of the Fund during the last three fiscal years is analyzed 
in the following table: 

1957-58 1958-59 1959-60 

Expenditures: 
Benefit payments $385,078,000 $478,631,000 $415,234,000 

Interest on advances from the Minister of 
Finance 1,517,000 

416,751000 
Revenues : 

Contributions from employers and employees . . 189,179,000 185,487,000 228,616,000 

Contributions by Government of Canada 37,836,000 37,097,000 45,723,000 

f Other receipts 28,004,000 21,773,000 16,907,000 

Less: Loss on sale of securities 4,182,000 10,115,000 8,414,000 

23,822,000 11,658,000 8^93,000 

250,837,000 234^42,000 282^32,000 

Excess of Expenditures over Revenues, represent- 
ing decrease in balance at credit of the Fund . .$ 134,241,000 $ 244,389,000 $ 133,919,000 



The excess of expenditures over revenues in 1959-60, shown above at $133,919,000, 
was financed by advances from the Minister of Finance under Section 86 of the Act 
and by the sale of securities. The advances, which totalled $79,000,000, were repaid by 
the end of the year. 

The numbers of persons receiving unemployment insurance benefits at the close 
of each of the past three years were as follows: 859,639 at March 31, 1958, 766,852 at 
March 31, 1959, and 823,005 at March 31, 1960. 

86281-3—4* 



AUDITOR GENERAL'S REPORT 

Cheng* „■ the Unemployment Insurance Act and regulations over the years hal 
-suited in a broadening of the coverage and in decreasing emphasis on insurance nr, 
-Pics recognized when the Fund was established in 1941. Various classes of seaso, 
employment were successively brought under the Act. Those employed in lumbering ■„ 
tagging operations in British Columbia were made insurable in 1945. transportation 1 
water in 1946, stevedoring in 1948. lumbering and logging operations in the remainder , | 
»nada ln 1950. and fishing in 1957. Separate figures in respect of benefits paid to an 
contributions received from these special classes are available only for fishermen- the' 
received benefits approximating $26,700,000 from April 1957 to March 31, 1960 where 
contribution, for this class during the same period amounted to $2,900,000. 

Special regulations imposed additional conditions on seasonal workers, and also o 

farmers who engage in insurable employment in the farming off-season, and on marri , 
-men. t0 est that hey ^ actua „ y .„ ^ ^ ^ - - 

woTe IctseT reSU ' ati ° nS ^ " *" — ""**■ *"• *« * ~ 

osc pp } Z T " mt0 ;° ^ WUh regU ' ati0nS g ° Vern ' ng ~> h ™^ ™ 
« W apphcable to farmers and married women because they were considered discrim. 

The coverage of fishermen, the majority of whom are self-employed rather thar 
under contract of service, has created serious difficulties in administration and co r„ 

■ 2' h S n0t , PraCt, r ble t0 ^ tK0 ° f «" b-ic conditions for receiving benefits. 
■•< , that the applicant be unemployed and available for work. 

Older workers, many of whom have been pensioned from their regular employment 
and married women also present special problems because of the difficulty in verifying 
that they are actually in the labour market and therefore entitled to benefit payments 

Supplementary benefits were introduced in February 1950 to meet the needs of 
claimants who had not made a sufficient number of contributions to qualify for regular 
benefits, the rate being about 80% of the regular benefit rate. The period during which 
supplementary benefits could be drawn was originally three months, but in 1953 this was 
extended to 3^ months, with contributions to the Fund being increased in recognition of 
the resultant additional benefit payments. In 1955 these supplementary benefits were 
made cqua , l0 reguUr b(mefits ^ fte ^ ^^ ^ ^^ ^^ December 

1957, the number of weeks of benefit for a given number of contribution-weeks was in- 
creased and the seasonal benefit period was extended (by 3i months for the winter ot 
957-68 and by 2 mouths for each of the last two winters). No increases in contributions 
to the Fund were provided to compensate for the additional cost arising from the above 



AUDITOR GENERAL'S REPORT 53 

hanges. In September 1959 there was a general increase in contribution rates but no 
becial contribution was made to compensate for the previous drain on the Fund caused 
y these changes in seasonal benefits. 

The report of the actuary, dated July 12, 1960, observes that "there is a distinct 
ossibility that if unemployment conditions continue at the level that prevailed in 1957- 
the Unemployment Insurance Fund may be exhausted in two or three years unless 
ction is taken to increase revenue or decrease benefit payments". 

Crown Corporations 

110. Section 87 of the Financial Administration Act requires the auditor of an 
igency or a proprietary Crown corporation to report annually to the appropriate Minister 
he result of his examination of the accounts and financial statements of the relative 
Corporation, and the report is required to state whether, in the auditor's opinion: 

"(a) proper books of account have been kept by the corporation; 

(o) the financial statements of the corporation 

(i) were prepared on a basis consistent with that of the preceding year and are in agree- 
ment with the books of account, 

(ii) in the case of the balance sheet, give a true and fair view of the state of the 
corporation's affairs as at the end of the financial year, and 

(iii) in the case of the statement of income and expense, give a true and fair view of the 
income and expense of the corporation for the financial year; and 

(c) the transactions of the corporation that have come under his notice have been within the 
powers of the corporation under this Act and any other Act applicable to the corporation." 

In addition, the auditor is required to call attention to any other matter falling within 
the scope of his examination that in his opinion should be brought to the attention of 
Parliament. 

111. Section 87 of the Act further requires that the annual report of the auditor be 
included in the annual report of each corporation, and Section 85 directs that such annual 
report be laid before Parliament by the appropriate Minister within fifteen days after 
he receives it from the corporation or, if Parliament is not in session, within fifteen days 
after the commencement of the next ensuing session. 

The financial statements of the various corporations, together with the related audit 
reports, are published in Volume II of the Public Accounts. 



54 AUDITOR GENERAL'S REPORT 

112. The Auditor General is eligible to be appointed the auditor, or a joint auditor, of 
a Crown corporation, and the accounts and financial statements of 22 of the 26 corpora- 
tions were examined by the Audit Office in the year under review, as follows : 

Corporation Reporting Minister 

Agency corporations: 

Atomic Energy of Canada Limited Trade and Commerce 

Canadian Arsenals Limited I >efence Production 

Canadian Commercial Corporation Defence Production 

Canadian Patents and Development Limited Trade and Commerce 

Crown Assets Disposal Corporation Defence Production 

Defence Construction (1951) Limited Defence Production 

National Capital Commission Public Works 

National Harbours Board Transport 

Northern Canada Power Commission Northern Affairs and 

National Resources 

Park Steamship Company Limited Transport 

The National Battlefields Commission Northern Affairs and 

National Resources 
Proprietary corporations: 

Canadian Broadcasting Corporation National Revenue 

Canadian Overseas Telecommunication Corporation .... Transport 

Cornwall International Bridge Company Limited Transport 

Eldorado Aviation Limited Trade and Commerce 

Eldorado Mining and Refining Limited Trade and Commerce 

Export Credits Insurance Corporation Trade and Commerce 

Farm Credit Corporation Agriculture 

Northern Transportation Company Limited Trade and Commerce 

Polymer Corporation Limited Defence Production 

The St. Lawrence Seaway Authority Transport 

. Other: 

Northern Ontario Pipe Line Crown Corporation Trade and Commerce 

113. The accounts of the following Crown corporations and other public instrumental- 
ities were not examined by the Auditor General during the year under review: 

Reporting Minister 

Bank of Canada Finance 

( 'anadian National Railways Transport 

The Canadian National Railways Securities Trust Transport 

Canadian National (West Indies) Steamships Limited . . . Transport 

The Canadian Wheat Board Trade and Commerce 

Central Mortgage and Housing Corporation Public Works 

Industrial Development Bank Finance 

Trans-Canada Air Lines Transport 






AUDITOR GENERAL'S REPORT 55 

114. The following paragraphs summarize the operating results of Crown corporations 
whose accounts were examined by the Audit Office during the year and include comments 
regarding the extent of the Crown's equity in each at the year-end, together with references 
to any qualifications made or explanations given by the Auditor General in his statutory 
audit report. They do not include references to the contents of Audit Office reports (see 
paragraph 9) where addressed to the managements of the corporations concerning their 
accounts for the year. 

Agency Corporations 

115. An agency corporation is an agent of Her Majesty in right of Canada and is 
responsible for the management of trading or service operations on a quasi-commercial 
basis, or for the management of procurement, construction or disposal activities on behalf 
of Her Majesty. 

116. Atomic Energy of Canada Limited. Expenditures for the 1959-60 research pro- 
gram of this company aggregated $31,574,000, of which $20,047,000 was for operating costs 
and $11,527,000 for capital outlays. In the case of the operating program, the available 
parliamentary appropriations and other income exceeded expenditures by $972,000, which 
amount has been refunded to the Receiver General of Canada. Of the $11,527,000 of capital 
expenditures, $10,797,000 was provided for by a parliamentary appropriation and the 
balance out of retained earnings account. Income from the company's commercial oper- 
ations amounted to $3,154,000 and expenses to $2,629,000. The resultant excess of income 
over expense of $525,000 was credited to retained earnings account. 

As at March 31, 1960, the Crown's financial interest in the company as reflected 
in the balance sheet amounted to $62,794,000, comprising: unexpended balance of 
$972,000 provided under a parliamentary appropriation; loans of $5,374,000 to provide 
housing for employees; unrealized profit of $753,000 on property sold on deferred pay- 
ment terms; capital stock of $54,000,000 and retained earnings of $1,695,000. Apart from 
these amounts was the investment in that portion of the capital assets which had been 
written off as research expense over the years, to a total of $89,184,000. 

117. Canadian Arsenals Limited. During the year ended March 31, 1960, this 
company's sales amounted to $25,049,000 and income from other sources was $431,000, 
while cost of sales totalled $20,965,000 and administrative expenses amounted to 
$821,000. The resultant excess of income over expense for the year was $3,694,000 before 
charging for unabsorbed overhead expenses. Cost of sales included charges for overhead 
at rates which would theoretically have absorbed overhead expenses had all the plants 
under the company's administration been operating at full capacity. As this was not the 
case, there were unabsorbed overhead expenses amounting to $5,754,000 which were 
attributed to idle plant capacity. After taking this into consideration, the net result of 
operations was a deficit of $2,060,000. A parliamentary appropriation (Vote 74) provided 
$2,000,000 towards this deficit and the remaining $60,000 was reflected in the balance 
sheet as recoverable from the Government of Canada at the year-end. 



56 AUDITOR GENERAL'S REPORT 

As at March 31, 1960 the company was financed by: advances of S15.3St3.000 from 
the Department of National Defence in respect of orders placed; advances of S7. 500.000 
from the Defence Production Revolving Fund; and advances of $7,500,000 from the 
Government of Canada for working capital. The company had under its administration 
nine Government-owned plants, the total cost of which exceeded $103,000,000. 

118. Canadian Commercial Corporation. The income of this corporation for the 
year ended March 31, 1960 totalled $227,000 while administrative expenses amounted 
to $294,000, giving an excess of expense over income of $67,000, which was charged to 
surplus account. At the year-end the corporation's agency account showed $2,114,000 
for obligations to principals, representing advances from various governments and inter- 
national bodies. The Crown's equity in the corporation at the year-end consisted of 
$6,000,000 of working capital advances and a surplus account -balance of $900,000. 

The audit report to the Minister included a reference to certain advances having 
been made to a supplier, in excess of those normally provided, to enable a project to be 
completed. It was observed that repayment of the advances was dependent on settlement 
of a claim for contract adjustment made by the corporation to its customer. 

119. Crown Assets Disposal Corporation. The proceeds from sales of surplus Crown 
assets by this corporation during the year ended March 31, 1960 amounted to $8,405,000. 
As of April 1, 1959, the Governor in Council authorized the corporation to retain 4% of 
the net proceeds from sales of lands and buildings and 10% of the net proceeds of all 
other sales and other income earned by the corporation, to meet administrative costs 
and other expenses (previously the corporation had been authorized to retain 10% of 
the net proceeds of all sales and other income). The percentage of net proceeds of sales 
and other income, retained during the year under review, resulted in corporate income 
of $738,000, which included $90,000 derived from sales for the account of the United 
States Government. Administrative expenses amounted to $606,000, leaving an excess 
of income over expense of $132,000. 

During the year, the Governor in Council directed the corporation to pay to the 
Receiver General, at intervals of not longer than six months, all of its surplus in excess 
of $100,000, and remittances amounting to $415,000 were made to the Receiver General 
in accordance with this direction. 

120. Defence Construction (1951) Limited. The expenses incurred by this company 
during the year ended March 31, 1960 in supervising construction and maintenance 
projects for the Department of National Defence and others (involving expenditure of 
some $103 million) totalled $3,207,000. After deducting $156,000 with respect to fees 
earned for various engineering and administrative services, etc.. there remained $3,051,000 
of net operating expenses to be met from the parliamentary appropriation provided for 
the purpose. 



AUDITOR GENERAL'S REPORT 57 

121. National Capital Commission. During the year ended March 31, 1960, the 
Commission was provided with funds through a parliamentary appropriation of $1,795,000 
for "Administration, and Operation and Maintenance of parks, parkways and grounds 
adjoining Government Buildings at Ottawa and Hull". The funds thus provided were 
supplemented by income from equipment rentals, sales of supplies and nursery stocks, 
etc., in the amount of $160,000, making available for expenditure a total of $1,955,000. 
Expenditures totalled $1,897,000 and the balance of $58,000 was recorded as refundable 
to the Receiver General. Interest charges on Government of Canada loans, amounting 
to $590,000, were provided for by means of a parliamentary appropriation of $460,000 
supplemented by rental and other income amounting to $133,000. The unexpended 
balance of $3,000 was recorded as refundable to the Receiver General. 

As of March 31, 1960, a balance of $2,360,000 was held by the Minister of Finance 
at the credit of the National Capital Fund, which was established by the National 
Capital Act, available for payment to the Commission to finance, with the approval of 
the Governor in Council, the cost of capital projects of the Commission and contributions 
towards the cost of municipal projects within the National Capital Region. 

At the beginning of the year, the unexpended balance of funds received from the 
National Capital Fund by the Commission was $345,000, to which was added $2,500,000 
drawn from the Fund and $77,000 arising from sales of land. Capital outlays, principally 
for roads, driveways, parks and boulevards, amounted to $1,806,000, while contributions 
to municipalities respecting capital works were $595,000, leaving an unexpended balance 
at the end of the year of $521,000. 

Loans received by the Commission from the Government of Canada for the acquisi- 
tion of property in the National Capital Region increased by $10,642,000 during the year 
to $17,742,000, and of this amount $17,292,000 had been expended. 

The accumulated cost of capital assets under the administration of the Commission 
amounted to $51,194,000 at the year-end. 

122. National Harbours Board. The Board's financial statements given in the Public 
Accounts are a consolidation of the balance sheets and statements of income and expense 
for the harbours of Halifax, Saint John, Chicoutimi, Quebec, Three Rivers, Montreal, 
Churchill and Vancouver, as well as the grain elevators at Prescott and Port Colborne 
and the Jacques Cartier Bridge at Montreal. Total operating income for the financial 
year ended December 31, 1959 amounted to $24,206,000 and the operating expenses to 
$15,598,000, leaving a net operating income of $8,608,000. After adding income from 
investments, etc., of $2,344,000 and deducting $7,925,000 for interest on loans and ad- 
vances, $3,403,000 for provision for replacement of capital assets and $219,000 for other 
special charges, a net loss of $595,000 resulted. This amount was added to the accumu- 
lated deficit brought forward from the previous year. 



58 AUDITOR GENERALS REPORT 

The proprietary equity of the Government of Canada as of December 31, 1959, as 
shown on the Board's balance sheet, was $399,243,000, comprising: value of assets trans- 
ferred to the Board, §56,923,000; loans and advances, $265,997,000; interest in arrears 
on loans and advances, $54,010,000; and reserve for replacement of capital assets and 
other reserves, $89,085,000— less an accumulated deficit of $66,772,000. 

123. Northern Canada Power Commission. The Commission's income amounted to 
82.507,000 for the year ended March 31, 1960. Expenses amounted to $2,117,000, com- 
prising: operating expenses, $834,000; maintenance, $72,000; administration, $156,000; 
interest on advances from the Government of Canada, $507,000; and depreciation, 
$548,000. The resultant net income of $390,000 was carried to surplus account. At the 
year-end the balance at credit of surplus account was $510,000 after transferring $138,000 
to the reserve for contingencies and $105,000 to the reserve for extension, expansion and 
improvements. The balances in these reserve accounts then stood at $815,000 and 
$212,000, respectively. 

The liability to the Government of Canada with respect to advances to the Com- 
mission for capital construction purposes under Sections 14 and 15 of the Northern 
Canada Power Commission Act was $25,857,000, and for advances pursuant to agreements 
entered into under the Atlantic Provinces Power Development Act, $9,201,000. 

124. Park Steamship Company Limited. The active operations of this company 
ceased in 1947 on the disposal of the government-owned fleet of cargo ships under its 
administration, and the activities of the company have since been confined to the liqui- 
dation of the accounts and claims relating to those operations. 

125. The National Battlefields Commission. During its financial year ended March 
31, 1960, the activities of this Commission were financed by $178,000 provided by a 
parliamentary appropriation. Expenditures amounted to $171,000 and the excess of in- 
come over expense of $7,000 was credited to the proprietary equity account. 

The Government of Canada's equity in the Commission was $1,437,000, represented 
by a special reserve fund of $13,000 and a proprietary equity account balance of 
$1,424,000. 

Proprietary Corporations 

126. A proprietary corporation is responsible for the management of lending or 
financial operations, or for the management of commercial and industrial operations 
involving the production of or dealing in goods and the supplying of services to the 
public. 

127. Canadian Broadcasting Corporation. The expenses of the corporation for the 
year ended March 31, 1960 amounted to $94,040,000. Costs of production and distribution 
for programs without advertising were recorded as $48,387,000, and for programs with 



AUDITOR GENERAL'S REPORT 59 

advertising, as $32,581,000. Operational supervision and services of $6,878,000 and selling 
and general administration of $5,703,000 largely accounted for the balance of the expenses. 
Commercial revenue amounted to $38,162,000 and interest on investments and miscella- 
neous income to $402,000. A parliamentary appropriation (Vote 43) provided $58,404,000, 
of which $6,104,000 was not required, with the result that the Government of Canada 
paid $52,300,000 in respect of the net operating requirements of the radio and television 
services. Offsetting amounts of $3,175,000 are recorded in the Statement of Operations 
and the Statement of Proprietor's Equity Account to compensate for the inclusion in 
operating expenses, for cost ascertainment purposes only, of the provision made for 
depreciation of capital assets. 

The equity of the Government of Canada at March 31, 1960, as shown by the State- 
ment of Proprietor's Equity Account, stood at $34,232,000, representing working capital 
of $6,000,000 and capital assets of $28,232,000. 

The International Broadcasting Service facilities are operated by the corporation on 
behalf of the Government of Canada and are shown on the corporation's balance sheet at 
cost in the amount of $6,264,000. These facilities have been acquired over the years through 
charges to annual parliamentary appropriations for "International Shortwave Broad- 
casting Service — Construction or Acquisition of Buildings, Works, Land and Equipment, 
including Supervision". 

128. Canadian Overseas Telecommunication Corporation. Income for the year ended 
March 31, 1960 amounted to $5,778,000. Operating, administrative, traffic solicitation and 
other expenses aggregated $3,892,000 and, after providing $938,000 for income taxes, there 
was a net profit of $948,000 which was credited to surplus account. 

The Government of Canada's equity in the corporation at March 31, 1960, totalled 
$25,179,000, consisting of $22,590,000 advanced under Section 14 of the Canadian Over- 
seas Telecommunication Corporation Act, together with $2,589,000 at credit of surplus 
account. 

129. Cornwall International Bridge Company Limited. This company is jointly owned 
by The St. Lawrence Seaway Authority and its United States counterpart, the Saint 
Lawrence Seaway Development Corporation. The company's income for its financial year 
ended September 30, 1959 amounted to $320,000, principally derived from the assessment 
of bridge tolls. Operating and administrative expenses aggregated $117,000. The resultant 
net income of $203,000 was transferred to The St. Lawrence Seaway Authority in lieu of 
rental for the right-of-way over bridge, management fee, etc. 

The shareholders' equity in the company totalled $110,000, comprising $50,000 of 
capital stock and a surplus balance of $60,000, after deducting $37,000 for the loss sus- 
tained on the abandonment of capital assets during the year under review. 



60 AUDITOR GENERAL'S REPORT 

130. Eldorado Aviation Limited. This company is a wholly-owned subsidiary of 
Eldorado Mining and Refining Limited providing aviation facilities exclusively to the 
Eldorado group. Operational and administrative expenses for the year ended December 
31, 1959, amounting to $962,000, including depreciation of $153,000, were apportioned 
between Eldorado Alining and Refining Limited and its other subsidiary, Northern Trans- 
portation Company Limited, in the amounts of $856,000 and $106,000, respectively. 

The capital of the company consisted of $28,006 of capital stock together with a 
surplus balance of $217,000 which arose from proceeds of insurance, profits on sale of 
aircraft and major spare parts and prior years' adjustments. 

131. Eldorado Mining and Refining Limited. During the year ended December 31, 
1959 sales and other income amounted to $38,414,000, exclusive of amounts totalling 
$295,330,000 derived from the sale of uranium concentrates purchased from other produ- 
cers and on which no profit was earned by the company. Cost of sales totalled $27,418,000 
and scientific research, exploration and administrative costs totalled $1,439,000. After a 
charge of $1,043,000 for the cost of additional benefits in respect of past service, arising on 
establishment of a new pension plan for employees, and a provision for income tax in the 
amount of $4,380,000, a net profit for the year of $4,134,000 remained and was credited 
to surplus account. Dividends of $4,230,000 were paid to the Receiver General during the 
year. 

The Government of Canada's equity in the company as at December 31, 1959 
amounted to $53,306,000, represented by capital stock and surplus in the amounts of 
$6,586,000 and $46,720,000, respectively. 

132. Export Credits Insurance Corporation. The income of this corporation for its 
financial year ended December 31, 1959, amounting to $1,240,000, consisted of: premiums 
on risks insured, $558,000; portion of premiums in respect of insurance entered into under 
Section 21 of the Export Credits Insurance Act, $115,000; and interest earned on Govern- 
ment of Canada bonds, 8567,000. Administrative expenses amounted to $235,000. 
Policyholders' claims amounting to $176,000 were paid by the corporation, while recoveries 
of claims previously paid amounted to $335,000. The net result of the operations for the 
year amounted to $1,164,000 which was carried to the credit of the underwriting reserve, 
as required by Section 11 A of the Export Credits Insurance Act. 

The Government of Canada's equity in the corporation at December 31. 1959 was 
$10,000,000, consisting of share capital of $5,000,000 and capital surplus of $5,000,000. 
Investments in Government of Canada securities held by the corporation at the year-end 
amounted to $15,205,000 so that the Government's equity, plus the underwriting reserve 
of $4,905,000. was more than offset by the Government securities held by the corporation. 

The liability of the corporation under the contracts of insurance issued and out- 
standing as of December 31, 1959 totalled $159,117,000, of which $98,956,000 was for 
contracts entered into under Section 21 of the Act. which provides that all moneys 



AUDITOR GENERAL'S REPORT 61 

required to discharge the liabilities arising under such contracts are payable to the corpora- 
tion by the Minister of Finance out of unappropriated moneys in the Consolidated 
Revenue Fund. 

133. Farm Credit Corporation. This corporation is the successor to the Canadian 
Farm Loan Board, under the Farm Credit Act, c. 43, 1959, proclaimed on October 5, 1959. 
Under Section 30 of the Act, the Farm Credit Corporation assumed all property, rights, 
obligations and liabilities of the Canadian Farm Loan Board. 

During the financial year ended March 31, 1960, 5,339 loans were made to farmers 
to a total of $40,031,000, and repayments amounted to $7,904,000. Loans outstanding 
at the balance sheet date, including accrued interest, amounted to $120,152,000. Interest 
earned on loans to farmers during the year amounted to $5,027,000 and other income 
to $129,000. After deducting $3,751,000 for interest on loans from the Government of 
Canada, an amount of $1,405,000 was available to meet administrative expenses, which 
totalled $1,165,000. The resultant net earnings of $240,000 were carried to the statutory 
reserve for losses, increasing the balance at the credit of that reserve to $3,749,000 at 
the year-end. 

Pursuant to Section 30 of the Act, the issued and outstanding shares of capital stock 
of the Canadian Farm Loan Board, consisting of 50,000 shares with a fully paid value 
of $5,000,000, were cancelled and a like amount was deemed to have been paid to the 
corporation, as capital, by the Minister of Finance under Section 12 of the Act. Govern- 
ment of Canada loans to the corporation as at March 31, 1960, amounted to $110,700,000, 
including $15,800,000 obtained during the last six months of the year at an interest 
rate of 5|% per annum. Under Section 16 of the Act, these funds were loaned to farmers 
at 5% per annum. Over the repayment period of 25 years, it is estimated that the 
interest loss to the corporation on these loans will amount to over $2,000,000. 

134. Northern Transportation Company Limited. The income of this company, a 
wholly-owned subsidiary of Eldorado Mining and Refining Limited, amounted to 
$3,847,000 for its financial year ended December 31, 1959, while operating and admin- 
istrative expenses and provisions for depreciation totalled $3,287,000. After deducting 
$400,000 for the cost of additional benefits in respect of past service, arising on establish- 
ment of a new pension plan for employees, and $76,000 for the provision for income tax, 
$84,000 remained which was credited to surplus account. During 1959, in order to provide 
for possible marine losses not protected by commercial insurance, the sum of $100,000 
was transferred from surplus account to a reserve for marine insurance. The parent 
company's equity in the company at December 31, 1959 was $5,613,000, consisting 
of $152,000 of capital stock and $5,461,000 of surplus. 

135. Polymer Corporation Limited. During its financial year ended December 31, 
1959, net sales of products and services of this company amounted to $59,847,000 and 
other income to $405,000. Cost of sales amounted to $50,923,000 and other expenses to 



62 AUDITOR GENERAL'S REPORT 

§3,018,000. After providing $2,621,000 for income tax, a net income for the year of 
§3,690,000 resulted and was credited to surplus account. Dividends of $3,000,000 were 
paid to the Receiver General during the year. 

The Government of Canada's equity in the company at December 31, 1959 was 
$57,750,000, consisting of $30,000,000 in capital stock and $27,750,000 in surplus. 

136. The St. Lawrence Seaway Authority. The Authority commenced operations on 
April 25, 1959, and during the period to December 31, 1959 income from tolls and 
other sources totalled $9,214,000. Administrative, operating and maintenance expenses 
amounted to $3,953,000. After a charge of $7,994,000 for interest on loans from the 
Government of Canada and provision of $3,955,000 for depreciation, there was a net 
loss of $6,688,000 which was carried to the deficit account. 

Responsibility for the operation of non-toll canals and other properties at Lachine, 
Cornwall, Sault Ste. Marie and Niagara Peninsula was transferred to the Authority 
from the Department of Transport as from April 1, 1959. A net amount of $1,656,000 
was recovered from parliamentary appropriations to cover the operating and maintenance 
expenses of $830,000 and the cost of construction of works and acquisition of equipment 
of $1,139,000, less income from rentals, wharfage and other sources of $313,000. 

The Government of Canada's equity at December 31, 1959 is shown on the 
Authority's balance sheet as follows: 

Capital assets transferred from Department of Transport, April 1, 1959 (including 
Welland Ship Canal at a value of $130,716,000) $ 179,353,000 

Loans under Section 25 of the Act 285,500,000 

Interest on loans — matured and capitalized 24,427,000 

489,280,000 

Deduct: Deficit — net loss for the period April 25, 1959, commencement of opera- 
tions, to December 31, 1959 6,688,000 

S 482,592,000 



137. Northern Ontario Pipe Line Crown Corporation. The capital cost of $124,583,000 
of the Northern Ontario section of the all-Canadian natural gas pipe line at December 
31, 1959 consisted of $115,082,000 of assets acquired or in course of construction, and 
$9,501,000 of engineering, administration and financing expenses, financed out of funds 
provided through loans by the Government of Canada under Section 6 of the Northern 
Ontario Pipe Line Crown Corporation Act. The excess of income from pipe line rentals 
of $5,642,000, over interest on invested capital of $4,792,000, amounted to $850,000 and 
was credited to a reserve to be available for meeting obligations to the lessee, Trans- 
Canada Pipe Lines Limited, in the event that it exercises its rights under the existing 
purchase-option lease agreement. 



AUDITOR GENERAL'S REPORT 63 

Departmental Operating Activities 

138. Extensive trading or servicing activities are operated by several departments, 
for example: 

Agricultural commodities stabilization activities, operated by the Agricultural Stabilization 
Board under the Department of Agriculture ; 

National Film Board, under the Department of Citizenship and Immigration; 

Royal Canadian Mint, under the Department of Finance; 

Post Office activities; 

Public Printing and Stationery activities; 

Board of Grain Commissioners, under the Department of Trade and Commerce; 

Canadian Government Elevators, operated by the Board of Grain Commissioners under the 
Department of Trade and Commerce; 

Airports operations, under the Department of Transport. 

139. A general statutory direction is contained in the Financial Administration Act 
as to the way in which the operating results of Crown corporations are to be reflected in 
annual financial statements. There are, however, no statutory directions regarding the 
preparation of financial statements in respect of trading or servicing functions carried on 
as departmental activities. Revenues arising from such activities are included in the 
accounts as revenues of the departments concerned, while the expenditures which involve 
cash outlays in the year are recorded as charges against the parliamentary appropriations 
for those departments. Where statutory revolving funds are used to acquire materials, 
statements summarizing the transactions in the revolving fund accounts are included in 
the Public Accounts. 

It will be noted from the Public Accounts that there are a few instances where finan- 
cial statements showing operating results from departmental operating activities are 
included. However, for the reasons already explained in paragraph 13, the costs shown 
in these statements include only the direct costs arising from cash outlays by the depart- 
ments concerned. 

140. Agricultural commodities stabilization activities. The Agricultural Stabilization 
Board was established by the Agricultural Stabilization Act, c. 22, 1957-58. Stabilizing 
measures take the form of either the purchase of commodities at prescribed prices, or 
payment to producers of the amounts by which prescribed prices exceed those determined 
by the Board to be the average prices at which commodities are currently being sold. 
Purchased commodities may be sold or otherwise disposed of by the Board. The Board's 
activities are financed through the Agricultural Commodities Stabilization Account, to 
which charges are made for purchases of commodities and for other expenditures incurred, 
except administration expenses, and to which credits are recorded for all monies received 
by the Board from sales of commodities. 



64 AUDITOR GENERALS REPORT 

The transactions recorded through the Agricultural Commodities Stabilization 
Account during the year ended March 31, 1900, as shown in the Public Accounts, page 
A-56, are summarized as follows: 

Trading losses: 

Pork S 27,862,000 

Dry skimmed milk 8,108,000 

Eggs 4,S10,000 

Butter 3,409,000 

Other 697,000 

$ 44,886,000 

Stabilization payments: 

Milk 9,844,000 

Sugar beets 2,657,000 

Wool 1,219,000 

Soya beans ' 1,217,000 

Other 396.000 

15,333,000 

S 60,219,000 



The above loss for 1959-60, which represented the direct cost of stabilization measures 
taken by the Board, together with a residual balance of $107,000 brought forward from 
1958-59, exceeded the amount of $57,661,000 provided by Vote 640 by $2,665,000, and 
this amount remained to be carried forward as a charge to Expenditure in 1960-61. 

Various indirect costs were also incurred in relation to the stabilization program. 
The administrative expenses of the Agricultural Stabilization Board totalling $224,000 
were charged to the appropriation for "Agricultural Stabilization Act Administration" 
(Votes 10 and 490) as shown on page A-16 of the Public Accounts. In addition, special 
accounting services with respect to the stabilization program are rendered by the Office 
of the Comptroller of the Treasury, as a charge to the appropriation for the costs of that 
Office (Vote 107, 1959-60). Interest on the funds employed is not taken into consideration. 

At March 31, 1960 inventories held by the Board amounted to $117,796,000, com- 
prising: pork, $74,085,000; butter, $42,256,000; and other inventories, $1,455,000. 

141. National Film Board. The National Film Board was established by the National 
Film Act, c. 185, R.S., in order to promote the production and distribution of films in the 
national interest. The expenditures of the Board are charged to the National Film Board 
Operating Account provided for by Section 18 of the Act, and the Account is credited 
with income from the sale of films and miscellaneous revenues, and with amounts trans- 
ferred from annual parliamentary appropriations for "Administration, Production and 
Distribution of Films and Other Visual Materials" (Vote 234 in 1959-60). 

Under provisions of the Act, the Board maintains an accounting system on the accrual 
basis, additional to the accounts maintained by the Comptroller of the Treasury with 
respect to cash transactions. The financial statements for the year ended March 31. 1960. 



AUDITOR GENERALS REPORT 65 

prepared from the Board's accounts, are included in the Public Accounts, pages T-9 to 
T-ll. The following is a summary of the transactions for the year as shown in the State- 
ment of Income and Expense : 

Expense : 

Production of films S 2,441,000 

Distribution of films 1,912,000 

Administration and general services 782,000 

Cost of production of films and other visual materials for gov- 
ernment departments and others 1,158.000 

Acquisition of equipment 194,000 

$ 6,4S7,000 

Income: 
Sales of film and other visual materials to government depart- 
ments and others 1,359,000 

Rentals and royalties 576,000 

Miscellaneous 21,000 

■ 1,956,000 

Net expense S 4,531,000 



The net expense for the year as thus determined is without including charges for 
amortization of building construction costs and office furniture and furnishings, main- 
tenance services provided by the Department of Public Works, interest on funds employed, 
etc. 

142. Royal Canadian Mint. The Royal Canadian Mint operates under Part II of the 
Currency, Mint and Exchange Fund Act, c. 315, R.S., which requires that facilities be 
provided for making coins of the currency of Canada and for melting, assaying and refining 
gold. 

Revolving fund accounts are maintained for the purchase of the gold, silver and other 
metals used by the Mint in its operations, and inventories acquired through these accounts 
totalled $11,380,000 at the beginning of the year under review. Metal purchases charged 
to the several "purchase accounts" during the year totalled $95,172,000, comprising: gold. 
$88,311,000; silver, $6,441,000; nickel, $102,000; bronze, $257,000, and steel, $1,000. 
Credits to the purchase accounts totalled $100,036,000. comprising: $90,384,000 for sales 
of gold to the Bank of Canada and sundry purchasers; $8,219,000 for sales of silver coin; 
$25,000 for sales of silver bullion; $570,000 for nickel coins, and $838,000 for bronze coins. 
The inventories on hand at March 31, 1960 amounted to $11,503,000, after a downward 
adjustment of $83,000 for year-end gold revaluation. 

Amounts credited to the purchase accounts for sales of coin were at face value, and 
the excess of such amounts over the cost of metals used, together with the gold refining 
gain, was transferred to the credit of revenue of the Department of Finance, as follows: 
gain on coinage operations, $5,040,000; and gold refining gain, $30,000. In addition, there 
were revenues of $171,000 for gold refining charges and $189,000 for gold handling charges, 
making total revenues of $5,430,000. 

86281-3—5 



66 AUDITOR GENERAL'S REPORT 

Expenditures totalling $1,223,000 were charged to parliamentary appropriations, as 
follows: administration, operation and maintenance, $1,150,000; and construction or 
acquisition of equipment, $07,000. 

The net result of these charges and credits, as reported in the Department of Finance 
section of the Public Accounts, was an excess of revenue over expenditure of $4,207,000. 
Costs not reflected in the accounts include amortization of building and equipment costs, 
interest on funds employed, etc. 

143. Post Office activities. The activities of the Post Office are carried on in accord- 
ance with the Post Office Act. c. 212, R.S. 

The following is a summary of the Post Office transactions, reported as revenues, and 
as charges against parliamentary appropriations, in the Post Office section of the Public 
Accounts: 

Gross postal revenue $ 193,593,000 

Less: Expenses paid from revenue 26,031,000 



Net postal revenue 167,562,000 

Miscellaneous revenue 67,000 



167,629,000 
Deduct: Expenditure paid from parliamentary appropriations 

Operations $ 101,351,000 

Transportation 59,803,000 

Administration, financial services, etc 4,638,000 

165,792,000 



Excess of Revenue over Expenditure S 1,837,000 



This recorded excess of revenue over expenditure does not, however, take into consider- 
ation charges for: 

(a) amortization of building construction costs (the cost of constructing new buildings is 
borne by appropriations for the Department of Public Works) ; 

(b) maintenance and operation of buildings (this cost is undertaken as a charge to appropria- 
tions for the Department of Public Works) ; 

(c) amortization of furniture and equipment cost (in lieu of charges presently included for 
purchases, against either Public Works or Post Office appropriations) ; 

(d) share of the Government's contributions towards employees' superannuation ; 

(e) interest on funds employed ; 

(/) interest on Post Office Savings Bank deposits (presently recorded as a charge to interest 
on the public debt) ; 

nor credits for: 

(a) mail franked by and sent to Members of Parliament and government departments; 
(6) interest on Post Office Savings Bank funds on deposit with the Receiver General. 

144. Public Printing and Stationery activities. The activities of the Department of 
Public Printing and Stationery are governed by the Public Printing and Stationery Act, 
c. 226, R.S.. which places responsibility on the department for the execution of printing 



AUDITOR GENERAL'S REPORT 67 

and lithographing and the acquisition and distribution of papers, books and other articles 
of stationery required by the Senate and House of Commons and the various departments. 
In addition, the department is responsible for the sale of all books and publications issued 
by order of either or both Houses of Parliament or by any department. 

The basic operating expenses of the Department of Public Printing and Stationery 
are charged to the Queen's Printer's Advance Account, and credits are made to the Account 
for the value of the printing work executed for and charged (at "factory cost") to the 
various government departments, and for the value of stationery supplied and charged 
(at purchase cost) to the departments. The following is a summary of the transactions 
in the Account for the year ended March 31, 1960: 

Revenue : 

Printing work executed $ 15,522,000 

Stationery supplied 2,686,000 

$ 18,208,000 

Expenditure : 

Salaries 1,189,000 

Wages 4,513,000 

Paper, printing material, etc-, (including $448,000 reduction in 

inventory) 3,683,000 

Outside printing, etc 5,710,000 

Stationery purchased (including $66,000 reduction in inventory) 2,667,000 

Other 266,000 

18,028.000 

Excess of revenue over expenditure, comprising $161,000 on 
printing operations and $19,000 on stationery transactions $ 180,000 

In addition to the expenditure thus recorded through the Advance Account, there 
were expenses totalling $3,467,000 charged to appropriations, as follows: 

Departmental administration $ 642,000 

Purchasing, stationery and stores (largely for salaries of purchasing personnel, 

and repairs to office equipment) 1,152,000 

Distribution of official documents 429,000 

Printing and binding of publications for sale and distribution to departments 

and the public 689,000 

Printing of Canada Gazette 131,000 

Printing and binding the annual Statutes 45,000 

Plant equipment and replacements 379,000 

$ 3,467,000 



Credits to Revenue, in addition to the $180,000 excess of revenue over expenditure on 
printing operations and stationery transactions (recorded through the Queen's Printer's 
Advance Account, as noted above) amounted to $1,121,000, of which sales of publications 
to the general public accounted for $863,000. 

The net result of all the transactions thus reported in various places in the Public 
Accounts was an excess of expenditure over income of $2,166,000 for the year ended 
March 31, 1960. This, however, was without taking into consideration any charges for 
building maintenance, amortization of building cost, amortization of equipment (in lieu 
of purchase cost), interest on funds employed, etc. 



68 AUDITOR GENBRAL'S REPORT 

145. Board of Grain Commissioners. This Hoard operates under the authority of the 
I anada Grain Act, c. 25, R.S., as amended, for the purpose of regulating the grain trade in 
Canada, and it provides inspection, weighing and other services to owners of grain. 

Revenues of the Board, included as Department of Trade and Commerce revenues, 
totalled $2,605,000 for the year ended March 31, 1960, as follows: inspection, $1,674,000; 
weighing, $$51,000; and other revenues, $80,000. Expenditure paid from parliamentary 
appropriations during the year totalled $4,403,000, consisting of $3,817,000 for salaries 
and 8586,000 for other operating expenses. The excess of expenditure over revenue was, 
therefore. SI. 798,000. 

In 1951-52 there was an excess of revenue over expenditure paid from annual appro- 
priations of $108,000, and in 1952-53 there was a similar excess of $351,000. In 1953-54 
there was a comparatively small excess of expenditure over revenue of $188.000 — but 
each year since then there has been an excess of expenditure over revenue of more than 
SI million. 

We feel that further consideration should be given to the advisability of revising the 
tariff of fees payable for services rendered by the Board, with a view to closing the gap 
between the cost of the services and the fees charged. 

146. Canadian Government Elevators. The Canadian Government Elevators are 
operated by the Board of Grain Commissioners under the provisions of Section 166 of the 
Canada Grain Act and comprise five interior terminal elevators located at Moose Jaw, 
Saskatoon, Calgary, Edmonton. Lethbridge and two terminal elevators located at Port 
Arthur and Prince Rupert. 

The following is a summary of the elevator operations for the year ended March 31, 
1960, as shown in the Operating Statement given in the Public Accounts, page AG-29: 

Revenue : 

Storage S 1,196,000 

Elevation 310,000 

Drying 229,000 

( 'leaning 101,000 

Other 112,000 

S 1,948,000 

Expenditure : 

Salaries and wages 804,000 

Maintenance 440,000 

Other 303,000 

1,553.000 

Operating profit 395,000 

Add: Miscellaneous revenue 9,000 

Net Profit S 404,000 



AUDITOR GENERAL'S REPORT 69 

The net profit of $404,000 is without taking into consideration amortization of 
elevator construction costs, interest on the funds employed, etc. 

147. Operation of airports. Ninety-two airports were in operation by the Department 
of Transport at the close of the year under review. The capital investment in these facili- 
ties totalled $340,046,000, of which $44,454,000 was added during 1959-60. 

The following is a summary of the revenues for the year ended March 31, 1960 
recorded as departmental revenues: 

Aircraft landing fees: 

Domestic $ 1,804,000 

Trans-border 510,000 

Trans-oceanic 2,322,000 

Other 10,000 

$ 4,646,000 

Rentals : 

Hangar 211,000 

Living quarters 398,000 

Office, shop and garage space 612,000 

Other 417,000 

1,638,000 

Concessions : 

Gasoline and oil 1.150,000 

Other 697,000 

1,847,000 

Miscellaneous 886,000 

Total revenues $ 9,017,000 



Charges to the parliamentary appropriation for "Airports and Other Ground Services 
— Operation and Maintenance" totalled $16,678,000 for the year. 

The excess of the expenditure (excluding new construction) on the operation of 
airways and airports over the revenues received, as thus reflected in the Department of 
Transport section of the Public Accounts, was therefore $7,661,000 for the year under 
review. But this was without recording charges for amortization of airport construction 
costs, interest on funds employed or other costs (including portions of expenditure 
charged to general Air Services appropriations) which would have to be taken into con- 
sideration if it were desired to determine the actual net cost of operating the facilities. 



148. In order that Parliament may gain a clear understanding of the true financial 
results of departmental operating activities, without disturbing the present basis of 
providing appropriations or of reporting expenditure charged thereto, consideration 
should be given to the inclusion, in a separate section of the Public Accounts, of financial 
statements of the various activities designed to reflect the operating results in a clear and 

86281-3—6 



70 AUDITOR GENERAL'S REPORT 

concise manner. Such operating statements could be adjusted to an accrual basis and 
would include charges (on a memorandum basis, in the case of non-cash charges) for 
amortization of building and equipment acquisition costs, interest on funds employed, 
services provided by other government departments, etc. A reconciliation could be pre- 
pared between the operating results reflected by each such statement and the cash results 
indicated by the related departmental revenues and charges to parliamentary appropria- 
tions. Balance sheets could then be prepared which, among other things, would indicate 
the value of the assets employed by the several activities at the year-end. If statements 
of this type were produced, the Auditor General would be prepared to examine and 
certify them. 

Apart from their interest to Parliament each year in the Public Accounts, prepara- 
tion of such statements annually would mean that they could -be available at monthly or 
other short intervals, to the departmental managements responsible for the different 
operating activities, and as such they would be of considerable value to these manage- 
ments in their internal administration. This has already been demonstrated in the case 
of airport operations where bi-monthly statements (which include charges for deprecia- 
tion) are prepared on the accrual basis for administrative purposes throughout the year. 

Special Statutory Audits and Examinations 

149. In addition to the examinations of departmental accounts and the audits of the 
accounts of various Crown corporations, the following special audits and examinations 
were made by the Audit Office during the year in accordance with directions contained 
in various Statutes: Army Benevolent Fund, Canada Council, Exchange Fund Account, 
National Gallery of Canada. Public Printing and Stationery stores, The Queen 
Elizabeth II Canadian Fund to Aid in Research on the Diseases of Children, Royal 
Canadian Mint stocks and Yukon Territorial Government. 

150. Army Benevolent Fund. The accounts of this Fund were examined for the year 
ended March 31, 1960 in accordance with the requirement of Section 11 of the Army 
Benevolent Fund Act, c.10, R.S., and the relative report was addressed to the Members 
of the Army Benevolent Fund Board constituted by the Act. The annual report of 
the Board is required to be laid before Parliament by the Minister of Veterans Affairs. 

The receipts of the Fund for the year ended March 31. 1960 amounted to $230,000, 
comprising $217,000 for interest on the balance on deposit with the Receiver General 
and $12,000 for interest on investments held for the Fund, together with approximately 
SI, 000 for sundry receipts. The expenditures totalled $548,000, consisting of S480,000 
of grants to or on behalf of World War II veterans and $68,000 for service and admin- 
istrative expenses. The last-mentioned amount was after applying a grant of $18,000 
from an appropriation of the Department of Veterans Affairs. 



AUDITOR GENERALS REPORT 71 

After absorbing the $318,000 excess of disbursements over receipts, the balance at 
credit of the Fund at the close of the year under review was $6,863,000. 

151. Canada Council. The accounts and financial transactions of the Canada Council 
were audited for the year ended March 31, 1960, and the relative report was addressed 
to the Council and to the Prime Minister in accordance with the direction contained 
in Section 22 of the Canada Council Act, c.3, 1957. The annual report of the Council, 
containing the audit report, is required to be laid before Parliament under Section 23 
of the Act. 

Income earned on investments held for the Endowment Fund amounted to 
$2,856,000 during the year under review. Expenditures totalled $2,929,000, comprising 
$2,512,000 for authorized grants and awards, $354,000 for administration, $34,000 for 
outlays made on behalf of the Canadian National Commission for UNESCO and $29,000 
for the Canada Council Train. After deducting the $73,000 excess of expenditures over 
income during the year from an opening balance of $570,000, there remained a surplus 
of $497,000 available at the year-end for expenditure under Section 16 of the Act. 

The following is a summary of the transactions relating to the University Capital 
Grants Fund for the year ended March 31, 1960: 

Balance at April 1, 1959 $ 42,433,000 

Add: 

Interest earned on investments S 1,967.000 

Less: Net loss on disposal of securities 458,000 

1,509,000 

43,942,000 
Deduct: Authorized grants made under Section 9 of the Act 9,344,000 

Balance at March 31, 1960 S 34,598,000 



152. Exchange Fund Account. The accounts of the Exchange Fund for its financial 
year ended December 31, 1959, were examined pursuant to the requirement of Section 27 
of the Currency, Mint and Exchange Fund Act, c.315, R.S., and the relative report was 
addressed to the Minister of Finance in accordance with established practice. The 
section requires that a special certificate be given annually to Parliament and, in 
accordance with that requirement, it is certified that the transactions in connection 
with the Account for the year ended December 31, 1959 have been in accordance with 
the provisions of the Act, and that the records showed truly and clearly the state of 
the Account at the year-end. Section 26 of the Act requires that the Minister of Finance 
report annually to Parliament on the operations of the Account. 

86281-3- 64 



72 AUDITOR GENERALS REPORT 

The following is a summary of the transactions of the Exchange Fund Account for 
its financial year ended December 31, 1959: 

Balance at January 1, 1959 $ 2,010,125,000 

Deduct : 

Paid into the Consolidated Revenue Fund in respect of 1958 
earnings $ 18,625,000 

Repayment of advances (net) 47,500,000 



66,125,000 



1,944,000,000 



Add: 
Earnings on investments for the year ended December 31, 
1959 (to be paid into the Consolidated Revenue 
Fund) 25,513,000 



Balance at December 31, 1959 - $ 1,969,513,000 



153. National Gallery of Canada. The accounts and financial statements of the 
Gallery for the year ended March 31, 1960 were examined in accordance with the 
requirement of Section 9 of the National Gallery Act, c.186, R.S. The annual report of 
the Board of Trustees, including the Auditor General's report, is required to be laid 
before Parliament by the Minister of Citizenship and Immigration. 

The expenditures of the Gallery are largely met from annual parliamentary appro- 
priations provided for the purpose. However, there is provision in the Act for a Special 
Operating Account to which may be credited money received by the Board of Trustees 
by way of donation, bequest or revenue, and out of which expenditures may be made 
additional to those paid from appropriations. There is also an account called the National 
Gallery Purchase Account to which are credited moneys appropriated by Parliament 
for the purpose of acquiring works of art, and to which are charged expenditures for 
the acquisition of such works. 

The expenditures of the Gallery for the year under review totalled $751,000, of 
which $739,000 was provided from parliamentary appropriations, $10,000 from the 
Special Operating Account and $2,000 from the National Gallery Purchase Account. 
These expenditures comprised $723,000 for operating expenses, $27,000 for purchases 
of works of art, and $1,000 for expenditures from trust funds. 

Revenue amounting to $27,000 consisting of sales of $17,000, fees of $8,000 and 
miscellaneous receipts of $2,000 was credited to the Special Operating Account, which 
had a balance of $31,000 at the year-end. 

154. Public Printing and Stationery stores. Section 34 of the Public Printing and 
Stationery Act, c. 226, R.S., requires the Auditor General to "annually, or more 
frequently at his discretion, cause the stock of stationery, printing materials and supplies 
in store, to be checked with the quantities purchased and supplied". During the year 



AUDITOR GENERAL'S REPORT 73 

under review, tests were made to establish that the controls exercised by the depart- 
ment with respect to stores were operating satisfactorily. In addition, we participated 
in the annual physical stocktaking made by departmental personnel. A report on the 
examination was addressed to the Secretary of State. 

The stocks of stationery, printing materials and supplies held by the department 
at March 31, 1960 amounted to $2,571,000, including: supplies, $711,000; typewriter and 
office machine parts, $109,000; and miscellaneous items, $29,000 (on charge to the 
Stationery Branch), and: paper, $470,000; work in process, $333,000; printing and 
maintenance supplies, $513,000; field unit stock, $343,000; and miscellaneous items, 
$63,000 (on charge to the Printing Branch). 

155. The Queen Elizabeth II Canadian Fund to Aid in Research on the Diseases 
of Children. This Fund was established on July 8, 1959 by the Queen Elizabeth II 
Canadian Research Fund Act, c.33, 1959, and the accounts of the Fund were audited 
in accordance with Section 14 of the Act. Section 15 requires that the annual report 
of the Board of Trustees, including the Auditor General's report, be laid before 
Parliament by the Prime Minister. 

As provided by Section 4 of the Act, a sum of $1,000,000 was paid into the Fund 
by the Minister of Finance. Interest earned on investments totalling $14,000 and gifts 
by the public amounting to $3,487 were received and credited to the Fund during the 
period ended March 31, 1960. After providing $29,000 for awards authorized under 
Section 3 of the Act, a balance of $988,000 remained at the credit of the Fund at 
March 31, 1960. 

156. Royal Canadian Mint stocks. The Royal Canadian Mint is a branch of the 
Department of Finance and its revenues and expenditures are accordingly audited as 
part of the departmental revenues and expenditures. However, Section 20 of the Cur- 
rency, Mint and Exchange Fund Act, c.315, R.S., requires that the Auditor General 
shall "at least once in each year inspect the store of bullion and coin at the Mint". 
Such an inspection was made during the year under review and a report thereon is being 
addressed to the Minister of Finance. 

The stocks of bullion and metals at cost, and coin at face value, held by the Mint 
at March 31. 1960 amounted to $11,503,000, comprising: gold, $4,393,000; silver, 
$6,622,000; nickel, $193,000; bronze, $290,000; and steel, $5,000. 

157. Yukon Territorial Government. The accounts relating to the receipt and 
expenditure of Yukon Territorial Funds and to expenditures from parliamentary appro- 
priations for the Territory were examined for the year ended March 31, 1960 in 
accordance with the requirement of Section 26 of the Yukon Act, c.53, 1952-53. An audit 
report is being addressed to the Commissioner in Council of the Yukon Territory, with a 
copy being forwarded to the Minister of Northern Affairs and National Resources, in 
accordance with established practice. 



74 AUDITOR GENERAL'S REPORT 

The revenues of the Yukon Territorial Government for the year ended March 31, 
1960 totalled $2,456,000. including: liquor profits, $808,000; tax revenue, $535,000; 
federal subsidies and grants, $458,000; school attendance fees, $194,000; and licence 
revenues, $171,000. Net expenditures, after offsetting recoveries, totalled $2,671,000. 
including: projects classed as "capital". $902,000; education. $632,000; health and 
welfare, $343,000; roads, bridges and public works, $328,000; and municipal and town 
administration, $206,000. The excess of expenditures over revenues for the year was 
$215,000. Loans payable to the Government of Canada at March 31, 1960 amounted 
to $2,281,000. a decrease of $106,000 in the year. 



The past year has seen the retirement of two of my Audit Supervisors in the 
persons of Mr. B. R. King and Mr. \V. H. Casselman. Mr. King joined the staff in 
1924 and retired on May 16, 1960 while Mr. Casselman retired on October 18, 1960 
after 45 years' service. Throughout their long periods of service with the Audit Office 
they maintained excellent working relationships with the various departments and were 
held in high regard by all members of our staff. We wish them much happiness in their 
well earned retirement. 

In concluding this report, I would like to record my appreciation to all members 
of the staff of the Audit Office for their loyalty and devotion to duty during the past 
year, and in particular to Mr. Ian Stevenson, the Assistant Auditor General, and to 
my Audit Supervisors, Mr. B. A. Millar, Mr. G. R. Long, Mr. A. B. Stokes, Mr. 
D. A. Smith and Mr. J. R. Douglas. 

A. M. HENDERSON. 

Auditor General of Canada. 

November 14. 1960. 



APPENDICES 

Statement of Expenditure and Revenue for the Fiscal Year ended March 31, 1960. . Appendix 1 

Statement of Assets and Liabilities as at March 31, 1960 Appendix 2 

Summary of Appropriations, Expenditure and Unexpended Balances, by Depart- 
ments, for the year ended March 31, 1960 Appendix 3 

Summary of Expenditure, by Standard Objects, for the year ended March 31, 1960, 

with Comparative Figures for the Preceding Fiscal Year Appendix 4 

Summary of Revenue, by Departments, for the year ended March 31, 1960 Appendix 5 



76 AUDITOR GENERAL'S REPORT 



THE GOVERNMENT 

STATEMENT OF EXPENDITURE AND REVENUE FOR 

(with comparative figures for 
EXPENDITURE 

Fiscal year ended 
March 31, 1960 March 31, 1959 

Agriculture ..$ 181,389,595 $ 165,841,962 

Atomic Energy 30,114,125 26,136,051 

Auditor General's Office 866,879 826,681 

Board of Broadcast Governors 218,652 46,833 

Canadian Broadcasting Corporation 63,945,994 62,017,601 

Chief Electoral Officer 259,599 3,221,123 

Citizenship and Immigration. 54,916,725 52,843,669 

Civil Service Commission 3,654,664 3,511,558 

Defence Production . .. 17,600,214 13,843,622 

External Affairs 96,895,469 To, 486, 493 

Finance — 

Public debt charges 783,462,191 648,026,486 

Tax-sharing, subsidy and other payments to province- 518,900,813 467,006,053 

Other expenditure 117,792,124 113,172,742 

1,420,155,128 1,228,205,281 

Fisheries 19,880,914 17,506,475 

Governor General and Lieutenant-Governor's 421,083 412,469 

Insurance 1,237,533 1,224,160 

Justice 27,845.868 24, 345,475 

Labour 102.S85.123 86,755,801 

Legislation .. 19,237 7,626,868 

Mines and Technical Surveys 54,432,381 43,788,537 

National Defence — ■ 

Royal Canadian Navy 255,835,374 235,520,514 

Canadian Army 400,818,599 393,191,901 

Royal Canadian Air Force 728,442,093 637,526,704 

Defence research and development 39, 183,489 74,359,663 

Other expenditure 90,624,777 84,141,977 

1,514, 904, SS2 1,4S4,740,759 

National Film Board ... 4,555,417 4,258,905 

National Gallery 739,148 646,433 

National Health and Welfare- 
Family allowances 491,214,359 474,787,068 

Other expenditure 327,156,553 398,130,073 

818,S70,91S 872,917,141 

National Research Council 31,501,387 25,405,644 

National Revenue 68,696,069 68,787,837 

Northern Affairs and National Resources 81,111, 576 65, 176, 832 

Post Office 165,792,340 157.S03.478 

Privy Council 1,417,903 1,071,810 

Public Archives and National Library 745, 329 720, 044 

Public Printing and Stationery 3,466,734 3,451,428 

Public Works 217,876,413 226,061,039 

Royal Canadian Mounted Police 52,444,264 51,734,621 

Secretary of State 4,655,350 4,364,883 

Trade and Commerce.. 67,442,840 65,636,032 

Transport 296,446,971 288,837,764 

Veterans Affairs — 

Pensions 149,656,053 150,725,904 

Other expenditure ... 138,648,826 138,058,320 

288,304,879 288,784,22i 



Total expenditure ... 5,702,861,053 5,364,039,533 

Budgetary surplus or deficit (- ) -413, 109, 844 -G09, 316, 844 



5,289,751,209 4,754,722, 



Note — At the beginning of Part II a summarized statement of expenditure by standard objects and departments for 1959-60 
is presented. 

H. R. BALLS, K. W. TAYLOR, 

Comptroller of the Treasury. Deputy Minister of Finance. 

(The statements referred to in the footnotes are to be found at pages 4 to 11 of Part II 

of the Public Accounts.) 



AUDITOR GENERAL'S REPORT 



77 



OF CANADA 



APPENDIX 1 

(Auditor General's Report) 



THE FISCAL YEAR ENDED MARCH 31, 1960 

the preceding fiscal year) 

REVENUE 

Fiscal year ended 

March 3 1 , 1960 March 3 1 , 1959 

Tax revenues — 
Income tax — 

Personal'" $1 , 566, 643, 704 $1 , 353, 499, 314 

Corporation") 1,142,879,702 1,020,550,164 

On dividends, interest, etc., going abroad 73,353,360 61,213,291 

I* XC1S6* tillPS 

Sales tax<» 732,658,330 694,490,787 

Other 286,567,808 240,623,778 

Customs duties 525,722,158 486,508,581 

Excise duties 335,207,406 316,744,269 

Estate tax") 88,430,705 72,535, 140 

Tax on insurance premiums 18, 180 22, 602 

Miscellaneous 858,585 1, 190,600 

4,752,839,988 4,247,378,526 

Non-tax revenues — 

Return on investments 239, 653, 687 221 , 203, 583 

Post Office— net postal revenue 167,562,354 157,540,804 

Refunds of previous years' expenditure 40,630,026 37,663,439 

Services and service fees 31,298,623 27,195,002 

Proceeds from sales 21,891,546 23,521,331 

Privileges, licences and permits 24,969,835 27,883,455 

Bullion and coinage 5,429,778 4,4.54,630 

Premium, discount and exchange 1,017,858 

Miscellaneous 5,975,422 6,864,061 

587,411,271 507,544,16$ 



(1 > Excluding tax credited to the old age security fund — 

1959-60 1958-59 

Personal income tax 185, 550, 000 146, 350, 000 

Corporation income tax. 91,336,000 55,328,000 

Sales tax 270,000,055 173,622,697 

") Includes Succession Duties. 



Total revenue 5,289,751,209 



4,754,722,689 



Note — At the beginning of Part II a summarized statement of revenue by main classifications and departments for 1959-60 
is presented. 

Auditor General's Certificate 

The above statement has been examined in accordance with the provisions of the Financial Administration Act. I have 
obtained all the information and explanations that I have required, and I certify that the statement is in agreement with the 
accounts maintained by the Department of Finance, and is, in my opinion, correct, subject to the comments in my report to 
the House of Commons. 

A. M. HENDERSON, 
Auditor General. 



78 



M'MTOR GENERAL'S RETORT 



THE GOVERNMENT 

STATEMENT OF ASSETS AND 
(with comparative figures 



ASSETS 

March 31, I960 

1. ( 'urrent assets — 

(a) Cash, schedule A, page 102 . $ 56.5,436,461 

(b) Departmental working capital advances and revolving 

funds, schedule B, page 102 196,010,004 

(c) Securities held for the securities investment account, at 

amortized cost . ... 77,862,926 

(d) Other current assets, schedule C, page 103 22,837,203 

862, I 46,594 

2. Advances to the exchange fund account (value of investments 

from advances on basis of closing exchange rates: March 

31, 1960, $1,746,305,383; March 31, 1959, $1,798,268,160). 1,960,000,000 

3. Sinking fund and other investments held for retirement of 

unmatured debt, schedule D, page 103 85,272,230 

4. Loans to, and investments in, Crown corporations, schedule E, 

page 104 3,446,661,546 

5. Loans to national governments, schedule F, page 105 1,414,527,922 

6. Other loans and investments, schedule G, page 105 — 

(a) Subscriptions to capital of, and working capital advances 

and loans to, international organizations. . ... 605,174,878 

(b) Loans to provincial governments 90, 396, 788 

(c) Veterans land act advances (less reserve for conditional 

benefits) 151,626,032 

(J) Miscellaneous 87, 273, 714 

934,471, 412 

7. Securities held in trust, schedule II. page 107 30,611,723 

8. Deferred charges — 

Unamortized loan flotation costs, appendix No. 7, page 130 150,993,027 

9. I'namortized portion of actuarial deficiencies — 

Canadian forces superannuation account 326,300,000 

Public service superannuation account 139,000,000 

465,300,000 

10. Suspense accounts, schedule I, page 108 33,300 

11. ( 'apital assets 1 

12. Inactive loans and investments, schedule J, page 108 93,539,317 

Total Assets 9,443,557,072 

13. Less: Reserve for losses on realization of assets —546, 384, 065 

Net Assets 8,897, 173,007 

14. Net debt, represented by excess of liabilities over assets, 

schedule K, page 108 12,089, 194,003 



March 31, 1959 

t 640,459,071 

151,982,104 

98,030,754 

20,471,784 

910,943,713 

1,995,000,000 

83,214,185 

3,271,060,958 
1,448,960,511 



369,916,415 
96,338,853 

151,000,010 
65,800,331 

683,055,609 
20,742,062 



147,430,776 



Net increase 

or decrease ( — ) 

during 1959-60 

$ -75,022,610 

44,027,900 

-20,167,828 

2,365,419 

-48,797,119 

-35,000,000 

2,058,045 

175,600,588 
-34,432,589 



235,258,463 
-5,942,065 

626,022 

21,473,383 

251,415,803 

9,869,661 



3,562,251 



326,300,000 
139,000,000 
465,300,000 

2,465 30,835 

1 

92,215,718 1,323,599 

9,117,925,998 325,631.074 

-546,384,065 

8,571,541,933 325,631,074 



20,986,367,010 



11,678,389,860 
20,249,931,793 



410,804,143 
736,435,217 



Note— The increase in net debt of $410,804,143 reflects the budgetary deficit of $413,109,844 less an adjustment of $2,305,701 
in respect of prior years' transactions. 



II. U. HALLS, 
Ceim /tl roller of the Treasury. 



K. W. TAYLOR, 
Deputy Minister of Finance. 



(The schedules referred to in the above Statement are to be found in the Public Accounts 

at the pages indicated.) 



AUDITOR GENERAL'S REPORT 



79 



OF CANADA 



APPENDIX 2 

(Auditor General's Report) 



LIABILITIES AS AT MARCH 31, 1960 



as at March 31, 1959) 



LIABILITIES 



March 31, 1960 

15. Current and demand liabilities, schedule L, page 109 — 

(o) Outstanding treasury cheques $ 228, 768,468 

(b) Accounts payable (that portion paid in April of the next 

following fiscal year) 245,099,099 

(c) Non-interest bearing notes payable to the international 

monetary fund and the international bank for recon- 
struction and development 381,828,500 

(d) Matured debt outstanding 20,067,997 

(e) Interest due and outstanding 57,690,734 

(/) Interest accrued 137,622,473 

(ff) Other current liabilities 27,979,624 

1,099,056,895 

16. Deposit and trust accounts, schedule M, page 110 242,673,334 

17. Annuity, insurance and pension accounts, schedule N, page 113. . 3,565,375,649 

18. Undisbursed balances of appropriations to special accounts, 

schedule O, page 113 96,619,964 

19. Deferred credits, schedule P, page 113 83,961, 190 

20. Suspense accounts, schedule Q, page 114 8,528, 175 

21. Unmatured debt, schedule H, page 115 — 

(a) Bonds 13,765, 151,803 

(ft) Treasury bills 2,125,000,000 

15,890, 151, 80S 



March 31, 1959 



Net increase 

or decrease (— ) 

during 1959-60 



$ 247,305,080 $ -18,536,612 
256,401,698 -11,302,599 



205,828,500 
28,743,983 
56,214,613 

124,892,689 
33,173,039 

952,559,602 

237,917,457 
3,301,861,032 

83,386,633 
81,429,095 
18,664,471 



13,979,113,503 

1,595,000,000 

15, 574, US, 503 



176,000,000 
-8,675,986 
1,476,121 
12,729,784 
-5,193,415 
146.497.S9S 

4,755,877 

263,514,617 

13,233,331 

2,532,095 

-10,136,296 



-213,961,700 
530,000,000 
S16, 038,500 



Total Liabilities. 



20,986,367,010 



20,249,931,793 



736,435,217 



Note — Indirect or contingent liabilities consisting of securities guaranteed by, or other guarantees given by the Govern- 
ment of Canada, are listed on page 117. 

Auditor General's Certificate 

The above statement has been examined in accordance with the provisions of the Financial Administration Act. I have 
obtained all the information and explanations that I have required, and I certify that the statement is in agreement with the 
accounts maintained by the Department of Finance, and is, in my opinion, correct, subject to the comments in my report to 
the House of Commons. 

A. M. HENDERSON, 

Auditor General. 



Ml 



AUDITOR GENERALS REPORT 



APPENDIX 3 

(Auditor General's Report) 

SUMMARY OF APPROPRIATIONS, EXPENDITURE AND UNEXPENDED RALANCES 
RY DEPARTMENTS FOR THE YEAR ENDED MARCH 31, 1960 






Department 



Appropriations 



Expenditure 



Unexpended Balances 



Lapsed 



Carried 
Forward <l) 



Agriculture 

Atomic Energy 

Auditor General's Office 

Board of Broadcast Governors 

Canadian Broadcasting Corporation 

Office of the Chief Electoral Officer 

Citizenship and Immigration 

Civil Service Commission 

Defence Production 

External Affairs 

Finance 

Fisheries 

Governor General and Lieutenant-Governors. . 

Insurance 

Justice 

Office of the Commissioner of Penitentiaries. 
Labour 

Legislation 

Mines and Technical Surveys 

National Defence 

National Film Board 

Nat ional Gallery of Canada 

National Health and Welfare 

National Research Council 

National Revenue 

Northern Affairs and National Resources 

Post Office 

Privy Council 

Public Archives and National Library 

Public Printing and Stationery 

Public Works 

Royal Canadian Mounted Police 

Secretary of State 

Trade and Commerce 

Transport 

Canadian Maritime Commission 

Nat ional Harbours Board 

Veterans Affairs 



192,087,514 

32,092,300 

883,502 

223.889 

69,641,975 

265,599 

57,663,579 

3.765,961 

23.888,095 

112,196,264 

,433,876,465 

21,645,789 

437,015 

1,283,703 

8,252,620 

20,868,484 

128,094,306 

7,781,304 

57,341,868 

,680,183,608 

4,555,736 

914,640 

824,652,626 

31,733,580 

72,612,972 

89,998,683 

168,709,995 

1,628,143 

771,149 

3,535,946 

239,748,745 

54,508,381 

4,737,852 

68,546,822 

317,267.346 

6,856.842 

4,222,464 

298,560,310 



6,046,036,072 



181,389,595 

30,114,125 

866,879 

218,652 

63,945,994 

259,599 

54,916,725 

3,654.664 

17,600,214 

96,895,469 

1,420,155.128 

19,880,914 

421,083 

1,237,533 

8,126,216 

19,719,652 

102,885,123 

7,669,237 

54,432,381 

1,514,904,332 

4,555,417 

739,148 

818,370,912 

31,501,387 

68,696,069 

81.111,576 

165,792,340 

1,417,903 

745,329 

3,466,734 

217,876,413 

52,444,264 

4,655,356 

67,442,840 

287.768,882 

6,724,748 

1,953,341 

288,304,879 



5,702,861,053 



10,697, 

1,978, 

16, 

5, 

5,695, 

6, 

2.746. 

Ill, 

6,287, 

14,810, 

13,721, 

1,764, 

15, 

46, 

126, 

1,148, 

10,583, 

112 

2,909 

165,279 

175 

6,281 

232 

3,916 

8,887 

2,917 

210 

25 

69 

21,872 

2,064 

82 

1,103 

29,498 

132 

2,269 

10,255 



919 
175 
623 
237 
981 
000 
854 
297 
881 

en 

337 
875 
932 
170 
404 
832 
818 
067 
487 
276 
319 
492 
714 
193 
903 
107 
,655 
,240 
,820 
,212 
,332 
117 
,496 
982 
UM 
,094 
123 
,431 



328,059,557 



190,097 



14,625,365 



15,115,462 



<" Available for expenditure in 1960-61. 



H. R. BALLS, 

Comptroller of the Treasury. 



Auditor General's Certificate 

The accounts relating to the expenditures which are included in the above statement have been examined under my direction 
and, subject to the comments in my report to the House of Commons, made in accordance with the provisions of the Financial 
Administration Act, I certify that, in my opinion, the statement is correct. 

A. M. HENDERSON. 
Auditor General. 



(The sections referred to in the above Summary are to be found in the Public Accounts.) 



AUDITOR GENERAL'S REPORT 



81 



APPENDIX 4 

(Auditor General's Report) 



SUMMARY OF EXPENDITURE BY STANDARD OBJECTS 

FOR THE YEAR ENDED MARCH 31, 1960 

WITH COMPARATIVE FIGURES FOR THE PRECEDING FISCAL YEAR 

(in millions of dollars) 



Civil salaries and wages 

Civilian allowances 

Pay and allowances, defence forces and R.C.M. Police 

Professional and special services 

Travelling and removal expenses 

Freight, express and cartage 

Postage 

Telephones, telegrams and other communication services 

Publication of departmental reports and other material 

Exhibits, advertising, films, broadcasting and displays 

Office stationery, supplies, equipment and furnishings 

Materials and supplies 

Buildings and works, including land — 

Construction or acquisition 

Repairs and upkeep 

Rentals 

Equipment — 

Construction or acquisition 

Repairs and upkeep 

Rentals 

Municipal or public utility services 

Contributions, grants, subsidies, etc. not included elsewhere. 

Pensions, superannuation and other benefits 

All other expenditures (other than special categories) 

Interest on public debt, etc 

Subsidies and special payments to the Provinces 

Family allowances payments 

Old age assistance, blind persons and disabled persons allowances 

and unemployment assistance 

Veterans' disability pensions, etc 

Other payments to veterans and dependents 

Government's contribution to the Unemployment Insurance 

Fund 

Hospital insurance and general health grants 

Trans-Canada highway contributions 

Movement of mail by land, air and water 

Deficits — Government-owned enterprises 

Less: Expenditure recovered 

Net Total Expenditure 



1959-60 



710.4 
14.1 

498.1 
89.0 
62.1 
12.6 
5.7 
17.5 
8.6 
11.8 
22.2 

162.5 

344.6 
49.8 
15.9 

335.9 

162.5 

5.1 

48.5 
479.6 
109.7 

66.9 
783.5 
518.9 
491.2 

90.8 

149.7 

70.2 

45.7 
196.6 
53.3 
59.3 
52.1 



8 5,744.4 
41.5 



$ 5,702.9 



1958-59 



693.9 
11.1 

491.2 
93.1 
58.2 
11.9 
5.7 
16.8 
7.8 
11.8 
19.4 

180.6 

330.4 
50.6 
16.1 

472.2* 
158.5 
4.2 
45.0 
462.2 
105.7 
250.5 
648.0 
467.0 
474.8 

73.7 

150.7 

67.4 

37.1 
100.6 
51.1 
55.6 
60.7 



$ 5,683.6 
319.6* 



$ 5,364.0 



Increase or 
Decrease (-) 



16.5 
3.0 
6.9 

— 4.1 
3,9 

.7 
.0 
.7 
.8 
.0 
2.8 

- 18.1 

14.2 

— .8 

— .2 

—136.3 

4.0 

.9 

3.5 

17.4 

4.0 

—183.6 

135.5 

51.9 

16.4 

17.1 

— 1.0 
2.8 



96.0 
2.2 
3.7 
8.6 



60.8 
-278.1 



$ 338.9 



*For comparative purposes, the $212 million of defence equipment which was charged to the National 
Defence Equipment Account in 1958-59 is included in the $472.2 million shown for construction or acquisition 
of equipment in that year, a corresponding increase being made in the amount shown for "expenditure 
recovered". 



S2 



AUDITOR GENERAL'S REPORT 



APPENDIX 5 

(Auditor General's Report) 
SUMMARY OF REVENUE RY DEPARTMENTS FOR THE YEAR ENDED MARCH 31, 1960 



Section 



Department 



Tux Revenue 



Non-Tax 
Revenue 



Total 



A 
B 

C 

D 

E 

F 

G 

H 

I 

J 

K 

L 

N 

O 

O 

P 

Q 

R 

S 

T 

U 

V 

W 

X 

Y 

Z 

AA 

AB 

AC 

AD 

AE 

AF 

AG 

AH 

AI 



Agriculture 

Atomic Energy 

Auditor General's Office 

Board of Broadcast Governors. 
Canadian Broadcasting Corporation. . 
Office of the Chief Electoral Officer. 

Citizenship and Immigration 

Civil Service Commission 

Defence Production 

External Affairs 

Finance 

Fisheries 

Insurance 

Justice 

Office of the Commissioner of Penitentiaries. 

Labour 

Legislation 

Mines and Technical Surveys 

National Defence 

National Film Board 

National Gallery of Canada 

National Health and Welfare 

National Research Council 

National Revenue 

Northern Affairs and National Resources 

Post Office 

Privy Council 

Public Archives and National Library. . 

Public Printing and Stationery 

Public Works 

Royal Canadian Mounted Police 

Secretary of State 

Trade and Commerce 

Transport 

Veterans Affairs 



18,179 



4,751,463,174 
2,515 



856,070 



4,752,339,938 



4,589,467 

217,890 

4,719 

1,119 

3,324,062 

400 

1,565,281 

149 

14,842,950 

2,697,458 

188,430,598 

832,334 

631,883 

194,059 

724,268 

169,138 

145.921 

923,202 

22,797,471 

156,792 

893 

3,197,185 

22,752 

1,566,557 

6,558,784 

167,629,053 

5,568 

7,938 

1,300,711 

51,671,476 

11,731,231 

2,697,015 

16,486,723 

24,559,665 

7,726.559 



537,411,271 



4,589,467 

217,890 

4,719 

1,119 

3,324,062 

400 

1,565,281 

149 

14,842,950 

2,697,458 

188,430,598 

832,334 

650,062 

194,059 

724,268 

169,138 

145,921 

923,202 

22,797,471 

156,792 

893 

3,197,185 

22,752 

4,753,029,731 

6,561,299 

167,629,053 

5,568 

7,938 

1,300,711 

51,671,476 

11,731,231 

2,697,015 

17,342,793 

24,560,860 

7,726,559 



5,289,751.209 



H. R. BALLS, 

Comptroller of the Treasury. 



Auditor General's Certificate 



The accounts relating to the revenues which are included in the above statement have been examined under my direction 
and, subject to the comments in my report to the House of Commons, made in accordance with the provisions of the Financial 
Administration Act, I certify that, in my opinion, the statement is correct. 

A. M. HENDERSON. 

Auditor General. 



(The sections referred to in the above Summary are to be found in the Public Accounts.)